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Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

1. LIST OF DEFINED TERMS

Appellate Division Appellate Division of the Regional Court in Brno
Ayres Ayres Corporation
Arbitration Act Act No. 216/1994 Coll, on Arbitral Proceedings and Execution of Arbitral Awards (Czech Republic)
Bankruptcy Act Act No. 328/1991 Sb. Coll, on Bankruptcy and Composition (Czech Republic)
BIT or Treaty Agreement between the Government of Canada and the Government of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments
CC Creditor's Committee for Moravan a.s. bankruptcy
CDN Canadian Dollars
CKA Czech Consolidation Agency
Code of Civil Procedure Code of Civil Procedure, Act No. 99/1963 Coll.,
Commercial Code Czech Commercial Code, Act No. 513/1991 Coll.
Commercial Register Commercial Register of the Regional Court in Brno
Court Fees Act Act No. 549/1991 Sb. Coll., on Court Fees
CSOB C eskoslovenská obchodníbanka, a.s.
CZK Czech Crowns
Draft Cooperation Agreement Draft agreement prepared by Mr. Jaroslav Sup allegedly for execution by Claimant and Orbes representing LEGES, bankruptcy trustee for Moravan
ECHR European Convention on Human Rights and Fundamental Freedoms
EC Regulation Council regulation (European Communities) No. 1346/2000 of 29 May 2000 on insolvency proceedings
Final Award Final Award in the Stockholm Arbitration
FPS Frontier Petroleum Services Ltd., also referred to as "Frontier", "Claimant", or "Investor"
ICCPR International Covenant on Civil and Political Rights
Injunctions Claim Claimant's application to the Regional Court in Brno for an interim injunction to prevent entry in the Commercial Register of the resolution to increase the basic capital adopted at the 13 September 2002 LZ General Meeting
Interim Award Interim Award on Claimant's Motion for Interim Measures in the Stockholm Arbitration
ICJ International Court of Justice
LZ Letecké Závody, a.s.
LZ General Meeting 13 September 2002 LZ general meeting of shareholders
LEGES LEGES v.o.s.
LET LET, a.s.
LET Assets Former assets of LET, a.s.
MA Moravan-Aeroplanes, a.s.
MFN Most-favoured nation
Midland Facility Proposed support and service facility for L-410 aircraft in Midland, Texas
MMT MMT Plus s.r.o.
Moravan Moravan a.s.
New York Convention United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Order on Security Paragraph 2 of the dispositif of the Final Award, which orders the bankruptcy trustees for MA and LZ to grant Claimant first secured charges against the LET Assets and all of the property of MA (in accordance with the terms of the USA)
PCA Permanent Court of Arbitration
Promissory Note Promissory Note annexed to the Unanimous Shareholder Agreement which allegedly secured the loan of CZK 203,000,000 from FPS to MA
Regional Court Regional Court in Brno
Resolutions Resolutions taken at the 13 September 2002 LZ General Meeting
Resolutions Claim Claimant's application to the Regional Court in Brno for a declaration of invalidity of two resolutions adopted at the 13 September 2002 LZ General Meeting
Stockholm Arbitration Private arbitration between FPS and MA and LZ in Stockholm
Stockholm Tribunal Arbitral tribunal appointed to determine the Stockholm Arbitration
Tora Group Petition Petition for the bankruptcy of MA filed by the Tora Group on 14 August 2001
Transfin Transfin International s.r.o.
UCL Civil aviation office of the Czech Republic (Ú r ad pro civilní letectví C eská Republika)
UNCITRAL Rules UNCITRAL Arbitration Rules
US-Czech Republic BIT Treaty Between the Czech Republic and the United States of America for the Reciprocal Encouragement and Protection of Investment
USA Unanimous Shareholder Agreement entered into between FPS and MA effective on 31 July 2001
USD United States Dollars
Vala Opinion 25 May 2005 legal opinion of Mgr. Vladan Vala, legal counsel of bankruptcy trustee of MA
VCLT Vienna Convention on the Law of Treaties
WIMCO West Indies Mercantile Corporation

2. DRAMATIS PERSONAE

(All descriptions listed in the right-hand column apply to the relevant time periods addressed in this Award)

Vladimir Bartl Head of the Commercial and Economic Division of the Czech Embassy in Ottawa
Stanislav Benes Commercial Counselor at Czech Embassy in Ottawa
Marie Benesová Supreme State Prosecutor of the Czech Republic
Martin Boháček Judge overseeing the bankruptcy proceedings of LZ, Regional Court in Brno
Karel Cermak Minister of Justice of the Czech Republic
Lenka Chmelová Prosecutor, Supreme Prosecutor's office
Zlatava Davidová Trustee in bankruptcy for LET
Vojtech Filip Vice-President of the Czech Republic Parliament
Miroslav Gregr Previous Deputy Prime Minister and Minister of Industry and Trade of the Czech Republic
Zlata Groningerová Director in Chief of the CKA (Czech Consolidation Agency) and Chair of the Creditor's Committee for Moravan
Petr Hajtmar Trustee in bankruptcy for MA
Ludmila Hanzlikova Judge overseeing the bankruptcy proceedings of MA, Regional Court in Brno
Thomas Heath Consultant hired to assist management of LZ with negotiations with Rolls Royce and BAE Systems
Josef Jarabica Senior Director of Ministry of Industry and Trade of the Czech Republic
Jerry Jelenik Chairman of the Czech Business Association of Canada and Honorary Consul of the Czech Republic in Calgary
Donald Jewitt President of FPS
Patrik Joachimczyk Vice-President and director of MA and LZ
Luis Konski Counsel for MA and LZ in Stockholm Arbitration (Becker & Poliakoff)
Petr Kovanič Vice-Chairman of the Regional Court in Brno
Ronald Kovar Prosecutor, High Prosecutor's Office (Olomouc)
Yvona Legierska Deputy Finance Minister of the Czech Republic
Curtis Leonard General Counsel and Land Manager for ICA Energy Inc., engaged in joint venture with LZ and FPS to create and operate an LET aircraft support and service facility in Midland, Texas
Milan Matusik Vice-President and aviation consultant to FPS
Petr Olbort Lawyer for MA who participated in the drafting of the USA
Brett Olsen Counsel for FPS in Canada (Ogilvie LLP, Olsen Law Office)
Josef Orbes Representative of LEGES v.o.s., trustee in bankruptcy for Moravan
Bronislava Orbesová Representative of LEGES v.o.s., trustee in bankruptcy for Moravan
Jirí Parkmann Consul General for the Czech Republic in Canada
Jirí Poroubek Prime Minister of the Czech Republic
Petr Petrzilek Representative of the Office of the Czech Government, Prime Minister's Expert Department
Jirí Rusnok Minister of Industry and Trade of the Czech Republic
Vlasta Ruzickova Notary who recorded the minutes of LZ General Meeting of 13 September 2002
Pavel Rychetsky Vice-Secretary of the Czech Republic Government, Minister of Justice, and Chairperson of the Legislature
Adam Sanford Former President of Omnivus International
Miroslav Sládek Trustee in bankruptcy for LZ
Libor Soska President and Chairman of the Board of Directors of MA and LZ
Václav Srba Deputy Minister of Industry and Trade of the Czech Republic
Tomás Stefánek Vice-President of LZ and director of MA and LZ
Jaroslav Sup Agent for FPS in the Czech Republic (Transfin International)
Pavel Svaty Representative of the Ministry of Finance of the Czech Republic
Jitka Tutterova Counsel for FPS in the Czech Republic
Vladan Vala Legal advisor to Petr Hajtmar
Pavel Vosalik Ambassador of the Czech Republic in Ottawa

3. PROCEDURAL HISTORY

1.
Claimant in this arbitration is Frontier Petroleum Services Ltd. (hereinafter "Frontier", "FPS", "Claimant", or "Investor"), a corporation incorporated under the laws of the Province of Alberta, Canada, with its place of business at 523-10333 Southport Road, S.W., Calgary, Alberta, T2W 3X6. Claimant is represented in this matter by Mr. David R. Haigh, QC and Ms. Louise Novinger Grant of Burnet, Duckworth & Palmer LLP, Barristers and Solicitors, 1400, 350-7th Avenue SW, Calgary, AB, T2P 3N9, Canada, and Mr. Todd Weiler, Barrister & Solicitor, #19 - 2014 Valleyrun Boulevard, London, ON, N6G 5N8, Canada.
2.
Respondent in this arbitration is the Government of the Czech Republic (hereinafter "the Czech Republic" or "Respondent"). Respondent is represented in these proceedings by Ms. Karolína Horáková of Weil, Gotshal & Manges s.r.o., Charles Bridge Center, K f izovnické Nám. 193/2, 110 00 Prague 1, Czech Republic (since 1 June 2009), and Mr. Zachary Douglas, Matrix Chambers, Gray's Inn, 400 Chancery Lane, London, WC1R 5LN, United Kingdom. From at least 14 January 2008 until 4 May 2009, Respondent was represented by JUDr Vladimir Balas, CSc. of Rowan Legal s.r.o., GEMINI Center, Na Pankráci 1683/127, 140 00 Prague 4, Czech Republic. Mr. Radek Snábel, Director of the International Law Department of the Ministry of Finance of the Czech Republic, Letenská 15, Prague 1, 118 10, Czech Republic was authorised to act on behalf of Respondent from February 2008 onwards, and did so in May 2009 as Respondent changed counsel.
3.
By Notice of Arbitration dated 3 December 2007, Claimant commenced arbitration against Respondent pursuant to Article IX of the Agreement between the Government of Canada and the Government of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments dated 15 November 1990 ("BIT")1 which provides for arbitration under the UNCITRAL Arbitration Rules ("UNCITRAL Rules").
4.
In its Notice of Arbitration, Claimant appointed Henri C. Alvarez QC (of Fasken Martineau DuMoulin LLP, 2900-550 Burrard Street, Vancouver, BC, V6C 0A3) as the first arbitrator. By Notice of Appointment of Arbitrator: Communication of Other Important Facts Relating to Notice of Arbitration ("Notice of Appointment of Arbitrator") dated 14 January 2008, Respondent appointed Professor Dr. Christoph H. Schreuer (of the University of Vienna and of Wolf Theiss, Schubertring 6, 1010, Vienna, Austria) as the second arbitrator. On 11 March 2008, the co-arbitrators appointed David A.R. Williams QC (of Bankside Chambers, Level 22, 88 Shortland Street, Auckland, New Zealand) as the Presiding Arbitrator of the Tribunal. On 26 September 2008, the Parties confirmed that the Tribunal had been validly constituted in accordance with the UNCITRAL Rules.
5.
On 16 July 2008 and 1 August 2008, Claimant and Respondent respectively filed with the Tribunal lists of records on which they intended to rely. Respondent and Claimant respectively requested production of those records on 1 August 2008 and 6 August 2008.
6.
On 22 July 2008, the Tribunal informed the Parties that Claimant's Notice of Arbitration and Respondent's Notice of Appointment of Arbitrator were sufficiently detailed as to obviate the need for a separate statement of claim and statement of defence.
7.
On 14 August 2008, the Tribunal issued Procedural Order No. 1, in which it provided an initial procedural timetable for the arbitration, including a schedule for document production.
8.
Between 22 August 2008 and 31 March 2009, the Parties engaged in document production. Disputes arose regarding the production of certain documents, which were determined by the Tribunal in Procedural Orders Nos. 2, 3, and 4 dated 16 October 2008, 16 December 2008, and 4 February 2009, respectively.
9.
The Parties and the Tribunal executed Terms of Appointment dated 26 September 2008 in which they agreed that the Permanent Court of Arbitration ("PCA") would be the administering institution for the arbitration. The Tribunal appointed Ms. Sarah Grimmer to act as Administrative Secretary, who was assisted by Ms. Heather Clark.
10.
Between 18 December 2008 and 27 January 2009, the Parties and the Tribunal corresponded with respect to a revised procedural timetable.
11.
On 13 May 2009, Respondent notified the Tribunal of the revocation of the power of attorney of JUDr Vladimir Balas, CSc. of Rowan Legal s.r.o. On 25 May 2009, Respondent provided a power of attorney in favour of Mr. Radek Snábl of the Ministry of Finance that was effective as of 7 February 2008.
12.
On 16 May 2009, Claimant submitted its Memorial.
13.
By letter dated 1 June 2009, Respondent filed notice of the appointment of new counsel and proposed modifications to the procedural timetable. By letter dated 5 June 2009, the Tribunal indicated that the scheduled hearing dates would be maintained. In response, Claimant proposed a procedural timetable which was accepted by Respondent on 10 June 2009.
14.
On 20 July 2009, Respondent submitted its Counter-Memorial, in which it raised objections to the jurisdiction of the Tribunal.
15.
On 7 August 2009, the Tribunal issued Procedural Order No. 5 in which it joined Respondent's jurisdictional objection to the merits, to be determined in the Tribunal's final award, and requested that Claimant address Respondent's jurisdictional objections in its Reply Memorial.
16.
On 14 August 2009, Claimant submitted its Reply Memorial.
17.
On 8 September 2009, Respondent submitted its Rejoinder Memorial.
18.
By letters dated 14 September 2009, the Parties exchanged lists of witnesses.
19.
By letters dated 18 September 2009, each Party notified the Tribunal of the witnesses and experts it requested to attend the hearing for cross-examination.
20.
On 25 September 2009, the Parties filed Pre-Hearing Memorials.
21.
From 5 to 8 October 2009, the hearing was held at the Peace Palace in The Hague. Claimant cross-examined Ms. Zlata Groningerová, Mr. Milan Hulmák, and Mr. Joseph Kotrba. Respondent cross-examined Mr. Donald Jewitt and Mr. Adam Sanford. Respondent had indicated that it wished to cross-examine Mr. Jaroslav Sup but he was unable to attend the hearings for medical reasons. Claimant provided a medical certificate to the Tribunal.
22.
On 11 November 2009 and 8 December 2009, Claimant and Respondent submitted their respective Post-Hearing Memorials, including their submissions on costs.
23.
On 23 December 2009, Claimant submitted its Reply to Respondent's Post-Hearing Memorial.
24.
On 2 March 2010, Respondent supplemented its submissions on costs to include costs incurred after 30 October 2007.
25.
The Tribunal held in-person deliberations on 14 and 15 March 2010 and thereafter deliberated in writing.

4. INTRODUCTION TO THE DISPUTE

26.
According to Claimant, it made a significant investment in the aviation industry in the Czech Republic in 2000 through a joint venture to manufacture aircraft with Moravan-Aeroplanes, a.s. ("MA"), a corporation incorporated under the laws of the Czech Republic. On 8 August 2001, Claimant and MA entered into the "Unanimous Shareholder Agreement" ("USA"), under which Claimant financed the purchase by MA of the assets of LET, a.s. ("LET"), a recently bankrupt state-owned Czech aircraft manufacturing company. Under the USA, MA was to acquire the LET Assets and then transfer them, along with other assets of MA, to Letecké Závody a.s. ("LZ"), a company formed for the purpose of the joint venture project. LZ would then issue 49% of its shares to Claimant and assume MA's debt to Claimant.
27.
Following alleged breaches of the USA by MA, Claimant sought the assistance of various officials in the Czech government and initiated criminal proceedings against members of the board of directors of MA and LZ in November 2002. Claimant also initiated civil proceedings to intervene with certain corporate acts by LZ and MA and to protect its investment in ongoing bankruptcy proceedings in respect to MA and LZ in late 2002. In 2003, Claimant commenced arbitration in Stockholm against LZ and MA, obtaining an interim and final award in its favour. According to Claimant, the Czech courts wrongfully failed to recognise and enforce either award. Meanwhile, the LET Assets were sold off under bankruptcy proceedings with respect to MA and LZ.
28.
Claimant asserts that its investment in the Czech Republic was mistreated as a result of inaction of the Czech courts and officials, malfeasance by Czech bankruptcy trustees, and through the manifest inadequacy of the legal system of the Czech Republic with respect to the recognition of arbitral awards. For these reasons, Claimant argues that the Czech Republic is in breach of its obligations under the BIT to "encourage the creation of favourable conditions for investors of the other Contracting Party to make investments in its territory" (Article II(1) BIT), and accord fair and equitable treatment and provide full protection and security to Claimant's investment (Article III(1) BIT). Claimant argues that even if its transaction was flawed, it was nonetheless entitled to call upon the Czech state to protect its investment and access the remedies available under domestic law, the BIT, and customary international law.
29.
Respondent disputes Claimant's claims and emphasises that Claimant voluntarily entered into the risky joint venture project without performing proper due diligence on MA, its parent company Moravan, or its owner (all of which Respondent asserts were already technically insolvent), or securing operational capital that was necessary to run the business. In addition, under the USA, Respondent observes that Claimant was only ever to acquire a minority stake in LZ, and thus Claimant would never have enjoyed control over LZ or MA, and as an unsecured creditor, it was always exposed to the risk of their insolvencies. As it so happened, although Claimant obtained favourable awards in the Stockholm Arbitration, it was not able to enforce them against MA and LZ because the two companies were placed into bankruptcy. Respondent argues that the Czech courts were justified in refusing to enforce the Final Award of the Stockholm Arbitration because LZ and MA had been declared bankrupt before the Stockholm Tribunal rendered the Final Award, and that no state would allow a creditor to register a security interest over the assets of a debtor once it is the subject of bankruptcy proceedings.
30.
Respondent submits that Claimant cannot now seek to have the Czech Republic indemnify the consequences of Claimant's poor business decisions. Respondent argues that Claimant negligently assumed extreme financial risks in relation to its decision to attempt to produce aircraft at the LET factory and in the structuring of its investment, including by recklessly failing to secure for itself any standard legal protections in the joint venture agreement as a result of which it lost that investment. Respondent asserts that the obligations of the Czech Republic under the BIT do not include guaranteeing the contractual obligations or financial viability of private parties.
31.
Finally, Respondent insists that Claimant cannot show loss as a result of the Czech Republic's acts or omissions.

5. FACTUAL BACKGROUND TO THE DISPUTE

32.
What follows is a chronological summary of certain facts, some of which are disputed, that are relevant to this dispute without prejudice to the full factual record in this case that the Tribunal has considered.
33.
LET and Moravan a.s. ("Moravan") were both state-owned companies involved in the manufacture of aircraft in the Czech Republic.2 Moravan was the parent company of MA.3
34.
In 1994, LET produced 40 L-410 aircraft for delivery to a customer in the former USSR. The customer never paid for 35 of the 40 aircraft and as the production of these aircraft had been financed with bank loans, LET went into bankruptcy and was eventually privatised. Several successive managements of LET were unable to find customers for the unsold stock during the ensuing seven years.4
35.

On 16 July 1996, LET agreed with its creditors on a bankruptcy settlement. This settlement was guaranteed by Komerční banka, a then state-owned bank and large creditor of LET. LET emerged from its first bankruptcy partially financially restructured, with its debt reduced from more than CZK 5.4 billion to some CZK 2 billion.5

36.
On 17 March 1998, LET entered into an agreement with a strategic investor, Ayres Corporation ("Ayres"), a small US corporation, for the production of a small cargo aircraft.6 Claimant alleges that under this agreement, Ayres had to assume significant debt encumbering the LET Assets.7
37.
According to Respondent, the aircraft was ultimately never manufactured and the business relationship between LET and Ayres never produced the results intended by their agreement. LET was declared bankrupt for a second time on 24 October 2000. The investment by Ayres represented the only strategic investment in LET between its privatisation and bankruptcy.8
38.
On 25 May 2000, Donald Jewitt ("Jewitt"), President of FPS,9 entered into a Memorandum of Understanding with MA, regarding the possible commercialisation of the Finist aircraft, a Russian-designed utility aircraft. At that time, Mr. Libor Soska ("Soska") was the President and Chairman of the Board of Directors of MA. In its first year of operation, Claimant asserts that this project appeared to proceed well. A formal partnership agreement was executed between FPS, Milan Matusik ("Matusik") and MA on 9 February 2001.10 Matusik is the Vice-President of and aviation consultant to FPS.11
39.
On 20 July 2000, pursuant to a written agreement dated 18 July 2000, Claimant advanced USD 200,000 to MA for the purchase of an SM-92 Finist aircraft and to partially fund design royalties to be paid to TechnoAvia, a Russian company that owned the rights to the SM-92 Finist Aircraft.12 A license agreement effective 28 September 2000 for the manufacture of Finist aircraft was executed between MA, as agent and trustee for Claimant, and TechnoAvia.13
40.
On 4 December 2000, Claimant advanced a further USD 100,000 to MA.14
41.
It was against this background that Claimant and Matusik considered expanding their business relationship with Soska, specifically by purchasing the LET Assets.15
42.
Claimant asserts that as part of its due diligence, it considered the legal and political context of investing in the Czech Republic through attendance at meetings with representatives of the Czech government, and reviews of websites and materials directly and indirectly maintained by the Czech Republic, noting that the Czech government was boasting a safe, modern, transparent, and predictable investment climate including a robust arbitration regime.16 Claimant also asserts that it analysed all available information about the LET Assets, publicly available studies of the utility aircraft market, and income projections for what was to become LZ.17
43.
In late 2000, LET was declared bankrupt.18
44.
According to Claimant, in early 2001, Soska indicated to Claimant that MA had the opportunity to get involved in other projects with leading European aircraft manufacturers and suggested the acquisition of the LET facility by MA and Claimant in a joint venture to operate as LZ in order to expand the manufacturing capacity of MA.19
45.
On 21 May 2001, Jewitt and Matusik visited LET and viewed the unsold stock of the L-410 aircraft. At that time, new aircraft production at LET had been practically nonexistent for seven years.20
46.
A Memorandum of Information dated March 2001 prepared by the bankruptcy trustee of LET in connection with the sale of LET identified the risk of inadequate operating capital.21
47.
While investigating the potential purchase of the LET Assets, Claimant was allegedly informed that, in the course of Soska's negotiations with JUDr. Zlatava Davidová ("Davidová"), the bankruptcy trustee of LET, she had indicated that a much reduced price for the LET Assets was available on the understanding that LET would be dedicated to the revival of the Czech aircraft manufacturing industry, and on the condition that those assets would be controlled at least 51% by Czech nationals or a Czech entity because of the political importance of the aircraft industry. This reduced price would be the result of the Czech Consolidation Agency ("CKA") writing off the significant debt encumbering the LET Assets.22 The CKA is a state-run agency whose mandate is to acquire and dispose of the assets of failed companies in which the state had a significant interest.23
48.
On 18 April 2001, Claimant made the first of four payments for the financing of the purchase of the LET Assets, to MA, in the amount of USD 1,000,000.24
49.
On 18 June 2001, Claimant made the second of four payments for the financing of the purchase of the LET Assets, to MA, in the amount of CDN 2,000,000.25
50.
On 9 and 28 July 2001, several creditors filed petitions for the bankruptcy of Moravan. Moravan had defaulted on bank debt in excess of CZK 1 billion. The group behind MA had also allegedly been involved in a long dispute over unpaid debts with its financing banks.26
51.
On 25 July 2001, a creditor of MA, Tora Group, filed a petition for the bankruptcy of MA ("Tora Group Petition").27 On 14 August 2002, the Regional Court rejected the Tora Group Petition. Following an appeal, the rejection of the Tora Group Petition was repealed on 5 February 2004 because multiple creditors had filed for the bankruptcy of MA in the interim and the evidence indicated that MA was bankrupt.28
52.
On 1 August 2001, LZ was registered with the Commercial Register of the Regional Court in Brno ("Commercial Register", "Regional Court")29 as a wholly owned subsidiary of MA.30
53.
On 8 August 2001, Claimant and MA entered into the USA31 under which, Claimant states, MA agreed to acquire the LET Assets and transfer them, along with other assets of MA, to LZ, and LZ would then issue 49% of its shares to Claimant and assume MA's debt to Claimant. The loan from Claimant to LZ of CZK 203,000,000 was secured by a promissory note annexed to the USA ("Promissory Note") and a covenant that the loan was to be a first secured charge against the assets of MA and LZ.32 Claimant asserts that it was induced to enter into the USA on the basis of the success of its original engagement with MA.33 Prior to 8 August 2001, a representative of MA allegedly advised Claimant that Moravan was unable to repay its bank debt and was involved in a dispute with its financing banks.34
54.
On 9 August 2001, Claimant made the third of four payments for the financing of the purchase of the LET Assets, to MA, in the amount of CZK 35,000,000.35
55.
Claimant and Soska also agreed, aside from the USA, that Moravan would secure the payment of taxes and other expenses incurred in the transfer of the LET Assets, which were expected to exceed CZK 100,000,000 and potentially reach an amount equivalent to the selling price of the LET Assets.36 The amount of transfer tax due on the real property was assessed at CZK 61,000,000, which was approximately 2.5 times MA's profit in 2000.37
56.
On 14 August 2001, Claimant made the fourth and final payment for the financing of the purchase of the LET Assets, to Davidová, in the amount of CZK 80,000,000.38
57.
On 15 August 2001, MA and Davidová entered into two purchase and sale contracts for the production assets of LET and the tangible assets of Turbolet, s.r.o. (a LET subsidiary), and a contract for the transfer of aircraft type certificates.39
58.
It is uncontested that at the time the loan was disbursed by Claimant, its security interest over the movable and immovable assets of MA and over the LET Assets (after they were acquired) was not perfected.40 According to Claimant, between mid-2001 (prior to execution of the USA) and early 2002, it made repeated requests to MA for a listing of the LET Assets in order to register its security interest, all of which were deflected by representatives of MA.41 Mrs. Zlata Groningerová ("Groningerová"), Director in Chief of the CKA, acknowledged that the problems associated with gaining control of the LET Assets were anticipated.42
59.
After acquiring the LET Assets, MA failed to transfer all of the LET Assets to LZ, failed to transfer 49% of the shares of LZ to Claimant, and failed to provide a listing of the LET Assets and where they were located. Claimant alleges that both MA and LZ, controlled by Soska, immediately commenced a covert and unauthorised liquidation of the LET Assets.43
60.
Soon after the closing of the purchase of the LET Assets, Claimant began to have concerns about the intentions of MA and its principals to fulfil the obligations to FPS under the USA because MA began sending allegedly nonsensical financial and technical data to Claimant.44
61.
In mid-October 2001 at a Czech government-sponsored reception in Calgary, Claimant met with Mr. Jirí Parkmann ("Parkmann"), Consul General for the Czech Republic in Canada, and Mr. Jerry Jelinek ("Jelinek"), Czech Honorary Consul in Calgary, Alberta. Parkmann and Claimant discussed Claimant's project and Parkmann provided information on the Czech government, business environment, and tax system.45
62.
On 22 October 2001, a general meeting of LZ was held. At this meeting, Soska was declared president of the LZ Board of Directors and authorised the issuance of 309 new shares at a value of CZK 1,000,000 each. Claimant learned of this meeting in September 2002.46
63.
Respondent alleges that the bankruptcy trustee of MA later invalidated the October 2001 contribution of assets by MA into the capital of LZ pursuant to the USA on the basis of the effective date of bankruptcy of MA of 14 August 2001.47
64.
On 6 December 2001, Claimant made a further payment to MA, in the amount of CZK 3,712,296.48
65.
From late 2001 to June 2002, Claimant developed plans for the establishment of a support and service facility for L-410 aircraft in Midland, Texas (the "Midland Facility").49
66.
In January 2002, Claimant developed further concerns when it was informed by Thomas Heath ("Heath"), a pilot and marketing consultant that had been hired to assist the management of LZ with negotiations with Rolls Royce and BAE Systems, that discussions between LZ and prospective customers had only been at a high level of abstraction without any discussion of the manufacturing and financial specifics necessary to conclude a contract for work.50
67.
On 25 February 2002, Claimant conducted meetings with representatives of Rolls Royce and BAE Systems to discuss business opportunities, such as the manufacture of engine parts for Rolls Royce by LZ.51
68.
On 27 February 2002, Soska was declared personally bankrupt by Resolution of the Regional Court in Brno. He appealed the declaration on 14 March 2002 and it was annulled by the High Court in Olomouc on 24 May 2004.52 Claimant learned of Soska's bankruptcy in March 2002 and alleges that Soska informed Claimant in June 2002 that the bankruptcy proceedings had been nullified.53
69.
In April 2002, Soska sent certificates for purported post-dated non-registered bearer shares for 49% of LZ's issued shares for a total face value of CZK 151,000,000 to Claimant.54
70.
On 12 June 2002, Soska refused to sign agreements with North American partners that would permit the plans for the Midland Facility to proceed. Claimant asserts that the plans thereby came to a halt.55
71.
In July 2002, Jewitt discovered that the share certificates he received from Soska were not authentic.56
72.
By July 2002, the relationship between Soska and Jewitt had broken down completely.57 Respondent contends that following the end of this relationship, LZ did not have a source of funding for its business.58
73.
In July 2002, Matusik travelled to the Czech Republic with a representative of a financing company to introduce him to LZ's business and to continue discussions regarding the Midland Facility.59
74.
Also in July 2002, Mr. Brett Olsen ("Olsen"), counsel for Claimant in Canada, contacted Parkmann to relay concerns Claimant held with respect to Soska and LZ. Parkmann agreed to report those concerns to the Minister of Industry and Trade of the Czech Republic.60 Claimant asserts that it had been assured by Parkmann and Jelinek that the aviation industry was very important to the Czech Republic and therefore that government officials were likely to assist Claimant to protect its investments.61
75.
On 9 July 2002, Claimant also wrote directly to Doc. Ing. Miroslav Gregr, Deputy Prime Minister and Minister of Industry and Trade to request a personal meeting. Following a change in government, on 26 July 2002, Claimant wrote to Mr. Jirí Rusnok ("Rusnok"), the new Minister of Industry and Trade to again request a personal meeting.62
76.

By letters dated 26 July 2002 and 8 August 2002, the Deputy Minister of Industry and Trade, Václav Srba ("Srba"), indicated to Claimant that while the Czech government was not a party to the dispute between Soska (as owner of Moravan) and C eskoslovenská obchodní banka, a.s. ("CSOB"), a transfer of receivables related to Moravan was currently in progress from CSOB to the [CKA] and, once that transfer was complete, the state "will have a possibility to enter into negotiations with [Soska] from its position as creditor".63 The CKA acquired the receivable against Moravan from CSOB in July 2002. Srba also informed Claimant that he had been entrusted by Rusnok to arrange for the direct negotiation of the transfer of the debt to the CKA and had charged the Senior Director of the Ministry Ing. Josef Jarabica ("Jarabica") to meet with Claimant.64

77.
From approximately the second half of 2002 onwards, LZ began to default on its debts and its creditors began to file court enforcement orders; thirteen orders for attachment between 26 August 2002 and 23 November 2003, ranging in value from CZK 14,490 to CZK 3,600,000 were issued.65
78.
On 21 August 2002, Moravan was declared bankrupt and the CKA was identified as its largest creditor.66
79.
On 21 August 2002, Claimant had its first of several meetings with Jarabica.67 At this meeting, Claimant informed Jarabica of the events to date, including the fact that Soska had been petitioned into personal bankruptcy on 27 February 2002 and was therefore not entitled, as Claimant understood it, to hold office or be a director of any company in the Czech Republic. Jarabica allegedly (i) assured Claimant that he would speak to the Minister of Industry and Trade and the Minister of Justice with a view to finding a solution to Claimant's problems and that the Czech government would do all that it could to support Claimant in its future business activities; and (ii) expressed the importance of Claimant having met with him, and the ongoing interest of the Czech government in encouraging Claimant in the revival of the Czech aircraft industry.68
80.
In late August 2002, Claimant met again with Jarabica to urge him to take steps to ensure that the CKA together with the bankruptcy trustee take immediate control of the assets of Moravan.69 Between 2002 and 2004, Claimant alleges that it had three additional meetings with Jarabica seeking assistance from the Czech government to recover the LET Assets.70
81.
In September 2002, Claimant retained JUDr. Jaroslav Sup ("Sup") of Transfin International s.r.o. ("Transfin") to act as agent for Claimant in the Czech Republic.71
82.
Also in September 2002, Claimant met with Josef Orbes ("Orbes") of LEGES v.o.s. ("LEGES"), the bankruptcy trustee for Moravan, to ask him to use Moravan's ownership of MA and MA's control of LZ to preserve the LET Assets. Orbes allegedly advised Claimant that he did not have control of any of the assets, nor did he have access to the Moravan premises without Soska's permission.72
83.
Claimant also met with Groningerová in September 2002, at which time Claimant asserts that it urged the CKA to take steps to ensure that Orbes assume control of Moravan and its subsidiary companies to preserve the value of Moravan's assets. As MA and LZ were subsidiaries of Moravan, Claimant alleges that Moravan's assets indirectly included the LET Assets.73
84.
Approximately one week after Claimant met with Groningerová, she met with Orbes and at that meeting, Orbes explained to her that he had reason to be concerned that improper transfers of property out of Moravan into other companies had taken place. He had been barred from Moravan's premises, and he had requested police assistance in an effort to gain access to the premises.74
85.
On 13 September 2002, a general meeting of shareholders of LZ was held ("LZ General Meeting"). Claimant was denied entry to the meeting. Consequently, Claimant filed a shareholders' protest with the official notary recording the minutes of the meeting, noting that it was denied entry to the meeting and that LZ had failed to provide notice of the LZ General Meeting to Claimant. On 9 October 2002, Claimant filed a second protest.75 The minutes of the LZ General Meeting showed MMT Plus, s.r.o. ("MMT") as 51% shareholder and MA as 49% shareholder in LZ. Soska was recorded as the principal and ZLIN-LET America, Inc. was recorded as the 100% shareholder of MMT.76 An application for entry of changes in the Commercial Register was delivered on the same day.77
86.
On 31 October 2002, Claimant wrote to the CKA requesting again that it take control of the assets of MA and the LET Assets.78 Claimant did not receive a response to this letter.79
87.
In late 2002, Claimant applied to the Regional Court for a declaration of invalidity of two resolutions adopted at the LZ General Meeting: (i) changing the Articles of Association of LZ to increase the number of members of the board of directors of LZ from three to five; and (ii) increasing the basic capital of LZ by CZK 298,000,000 through a monetary contribution from Claimant ("Resolutions Claim"). Claimant also applied for an interim injunction to prevent entry in the Commercial Register of the resolution increasing the basic capital ("Injunctions Claim").80
88.
On 4 December 2002, Claimant's Injunctions Claim was denied on the grounds that Claimant had applied to enjoin a third party, the Commercial Register, and only an obligation relating to cooperation with the courts can be imposed on a third party.81
89.

On 20 November 2002, JUDr. Jitka Tutterova ("Tutterova"), counsel for Claimant in the Czech Republic, filed a criminal complaint with the Supreme Public Prosecutor in Brno against Soska, and his fellow LZ board members, Messrs. Tomás Stefánek and Patrik Joachimczyk ("Stefánek" and "Joachimczyk").82

90.
On 10 December 2002, Sup delivered a motion to initiate the criminal prosecution of Soska and Joachimczyk to the Police Presidium of the Czech Republic, Office for the Detection of Corruption and Serious Economic Crime in Prague, with a copy to the Office of the Municipal Prosecutor in Brno. The complaint alleged the crimes of fraud, breach of obligations in the administration of property of others, breach of mandatory rules of commercial conduct, and forging and altering of monetary instruments. On 20 March 2003, the crime of misappropriation of assets was added to the complaint.83
91.
By inventory report dated 10 December 2002, Orbes included the entirety of the businesses of MA and LZ (including all of the LET Assets) in the bankruptcy estate of Moravan. Claimant received notification of this inclusion by letter from Orbes dated 12 December 2002.84 In this report, Orbes recognised the economic potential of Moravan's assets, but noted that certain assets had been withdrawn from Moravan illegally, leaving significant liabilities in the company.85
92.
On 11 December 2002, Claimant sent a letter to the Zlín Financial Authority (copied to the Brno Tax Directorate and the Ministry of Finance) to request supervisory activity to protect the investment of FPS due to possible tax evasion by MA. The Ministry of Finance confirmed that it had received Claimant's letter on 10 February 2003.86
93.
On 12 December 2002, Orbes sent a notice to subsidiary companies of Moravan (including MA), the Regional Court, and Moravan's largest creditors,87 indicating that certain assets owned by subsidiary companies were included in the bankruptcy estate of Moravan and that the subsidiary companies "did not have a right to do anything with the assets of the bankrupt Moravan corporation enlisted in a bankruptcy list without the trustee's approval."88
94.
On 14 January 2003, Claimant met again with Orbes to discuss the status of the bankruptcy proceedings of Moravan and the fact that Orbes had included the LET Assets in the bankruptcy estate of Moravan.89 According to Claimant, at this meeting, Orbes indicated that he wanted to help but that he could not get control of the situation - apparently the local police would not help him get through the plant gates and the local courts were of no assistance.90 Orbes accepted documents presented by Claimant evidencing its ownership of 49% of the shares of LZ and accepted that Claimant would be the negotiating partner for future acts taken by Orbes as bankruptcy trustee for Moravan. Orbes indicated that within approximately one month, he expected to have assumed shareholder rights in the subsidiaries of Moravan and that the Regional Court will have issued an interim injunction, which would allow him to take steps with respect to the Moravan group of companies.91
95.
Following this meeting, Sup prepared a draft agreement for execution by Claimant and LEGES which documented Orbes' commitment on behalf of LEGES as bankruptcy trustee for Moravan to honour the USA, and the contemplated cooperation between LEGES and Claimant ("Draft Cooperation Agreement").92 Claimant alleges that before Orbes could execute the Draft Cooperation Agreement, he was removed from his position representing LEGES as bankruptcy trustee for Moravan and was replaced by his estranged wife, JUDr. Bronislava Orbesová ("Orbesová"), also of LEGES.93
96.
By letter dated 24 January 2003, Claimant submitted information to the Regional Court with regard to the entries in the Commercial Register pertaining to the legal status of MA and LZ and requested that the Commercial Register correct the entries to comply with the Commercial Code.94
97.
On 5 March 2003, the Commercial Register requested that MA provide within 30 days information to show that Soska and Joachimczyk were executing their positions as directors as prudent managers pursuant to Section 31(a)(4)(d) of the Commercial Code. MA did not reply to this request. Claimant was not informed of this request.95
98.
On 20 March 2003, Claimant sent a letter to the Supreme Public Prosecutor to follow up with respect to the complaint it had filed on 20 November 2002.96 On 1 April 2003, the Supreme Public Prosecutor appeared to treat the 20 March 2003 letter as a motion for supervision of the Regional Public Prosecutor's Office in Brno and submitted Claimant's letter to the High Public Prosecutor's Office in Olomouc.97
99.
On 2 April 2003, the Commercial Register requested that MA submit within 30 days the decision of the relevant body of the company confirming the election or appointment of Soska and Joachimczyk as board members pursuant to Section 31(a)(6) of the Commercial Code ("2 April 2003 Request").98
100.
On 15 April 2003, Claimant met with JUDr. Vojtech Filip ("Filip"), Vice-President of the Czech Republic parliament to complain about the alleged delays by the courts and law enforcement authorities. On 16 April 2003, Sup sent to Filip further information regarding their discussions about the USA and the Commercial Code.99
101.
On 16 April 2003, the Ministry of Justice wrote to the Regional Court requesting a report on its procedure on the basis of a request submitted by Claimant on 24 January 2003 to the Regional Court for deletion of Soska, Joachimczyk, and Stefánek from the Commercial Register as members of the board of directors of MA and LZ.100
102.

On 23 April 2003, JUDr. Petr Kovanič ("Kovanič"), Vice-Chairman of the Regional Court, in response to the 16 April 2003 request from the Ministry of Justice, reported on the steps that had been taken pursuant to Claimant's request, namely that a request had been sent to MA "to document to the court that [Soska, Joachimczyk, and Stefánek] fulfil the mandatory conditions for execution of their posts pursuant to Section 31(a) of the Commercial Code" within 30 days, which the Regional Court reported had not elapsed at that time. Kovanič noted that it took no action with respect to Claimant's request regarding LZ because it was satisfied by the minutes of the LZ General Meeting.101 Kovanič explained that the effects of the declaration of bankruptcy of Moravan on 21 August 2002 would not extend to "other entities not affected by the bankruptcy", that a resolution on the Moravan bankruptcy was not yet enforceable because an appeal to the declaration of bankruptcy had been filed, and that without an enforceable resolution, the termination of the posts described in Section 31(a) of the Commercial Code could not take place.102 Kovanič noted that Sup had visited the Regional Court on 1 April 2003 to make the same request in person and that the abovedescribed position of the court had been explained to him at that time.103

103.
By letter dated 7 May 2003, Soska responded to the 2 April 2003 Request, informing the Regional Court that there was "disagreement between registrations in the Commercial Register and reality" as Moravan was no longer the sole shareholder of MA. Soska enclosed two resolutions adopted by the West Indies Mercantile Corporation ("WIMCO"), a Panamanian corporate body, purporting to act as the sole shareholder of MA and confirming the appointments of Soska, Joachimczyk, and Stefánek as members of the statutory body ("WIMCO Resolutions"). Claimant was not informed of this correspondence.104
104.
Claimant also communicated its complaint to JUDr. Pavel Rychetsky ("Rychetsky"), ViceSecretary of the Czech Republic Government, Minister of Justice and Chairperson of the Legislature. By letter dated 14 May 2003, Rychetsky responded to questions raised during the 15 April 2003 meeting between Claimant and Filip.105
105.
On 15 May 2003, Claimant received a letter from the High Public Prosecutor's office in Olomouc confirming that it had initiated supervision of the Regional Public Prosecutor's investigation.106
106.
On 4 June 2003, the Commercial Register requested that MA submit within 15 days documents showing that it did not have a sole shareholder named Moravan. MA did not respond. Claimant was not informed of this correspondence.107
107.
On 23 July 2003, Claimant initiated private arbitration proceedings in Stockholm against MA and LZ for alleged breaches of the USA including (i) failure to deliver 49% of the LZ shares to Claimant; (ii) failure to make payments on the loan; and (iii) the improper and fraudulent disposition of the LET Assets ("Stockholm Arbitration").108
108.
On 18 September 2003, the Czech Republic Police dismissed Claimant's 10 December 2002 motion for criminal prosecution of Soska and Joachimczyk, concluding that there was no suspicion that a crime had been perpetrated.109
109.
On 30 September 2003, Claimant filed a complaint against the 18 September 2003 dismissal of its motion for criminal prosecution with the Police Force of the Czech Republic, Corruption and Economic Crime Unit.110
110.
On 8 October 2003, the Czech Social Security Administration filed a petition for the declaration of bankruptcy of LZ. At that point, it was owed over CZK 55,000,000 in unpaid social security tax by LZ.111
111.
By letter dated 14 November 2003, Claimant inquired about the status of its application at the Regional Court with respect to MA and LZ.112 On 25 November 2003, the Regional Court responded that MA "produced the required evidence but had not produced other necessary documents". Claimant notes that the Regional Court did not mention LZ, the purported shareholding of WIMCO, or that the deadline for MA to produce "other necessary documents" had passed some five months earlier.113
112.
As of November 2003, LZ had outstanding (unaudited) short-term obligations of CZK 266,000,000, excluding the loan from Claimant, and had stopped paying salaries to its employees.114
113.
On 1 December 2003, the Office of the Regional Prosecutor rejected Claimant's 30 September 2003 complaint against the dismissal of its motion for criminal prosecution.115
114.
On 8 and 9 January 2004, the tribunal in the Stockholm Arbitration heard Claimant's motion for interim relief and the MA and LZ motions on jurisdiction.116
115.

On 9 January 2004, Miroslav Sládek ("Sládek") was appointed as preliminary bankruptcy trustee for LZ.117

116.

On 30 January 2004, the tribunal in the Stockholm Arbitration issued an Interim Award on Claimant's Motion for Interim Measures ("Interim Award") enjoining LZ and MA from improperly selling and disposing of the LET Assets acquired with Claimant's funds. The dispositif of the Interim Award provided:

IT IS HEREBY ORDERED AS FOLLOWS:

1. Subject only to the provisions of paragraph 2 of this Order and to transfers to sales entirely within the ordinary course and present scope of their business, [MA] and [LZ] are hereby enjoined from breaching the [USA] dated July 31, 2001, and the Promissory Note dated August 8, 2001, and in particular, [MA] and LZ are hereby enjoined from any further selling, trading, pledging, encumbering, or otherwise disposing of the LET ASSETS, as defined in paragraph 11, Exhibit "3" of the Affidavit of Milan Matusik, sworn October 27, 2003, whether in the possession or control of either [MA] or LZ; pending conclusion of the Final Hearing of this arbitration, or further leave of the Arbitral Tribunal.

2. Notwithstanding paragraph 1 hereof, [MA] is permitted at any time to transfer to LZ any or all of the LET ASSETS held by [MA].

3. LZ is hereby enjoined from making any distributions, declaring any dividends or issuing any further shares pending the conclusion of the hearing in this arbitration or further leave of the Arbitral Tribunal.

4. Counsel to [MA] and LZ shall continue to hold the certificates for 49% of the issued and outstanding shares of LZ of any and all kind whatsoever pending the Final Award on the Merits of the Arbitral Tribunal.

5. [MA] is directed so to exercise its control of LZ, which exists by reason of its share ownership and control of the management and the Board of Directors of LZ, to cause LZ to comply fully with the provisions of this Interim Award.

6. Should the Arbitral Tribunal determine in the Final Award on the Merits that the Claimant ought not to have been granted the Interim Relief provided for in this Interim Award, and that [MA] and LZ, or either of them, have suffered damages as a result thereof, IT IS HEREBY DIRECTED that the said shares of LZ described in paragraph 4 hereof, shall stand as security for any such damages to [MA] and LZ, or either of them, which this Tribunal may determine have been suffered and for which Claimant ought to provide compensation.

7. The relief hereby granted in respect to Claimant's motion is interim only, and:

(a) such interim relief shall be without prejudice to any final determination of any and all matters in dispute in this arbitration in the Final Award; and

(b) such interim relief shall remain in force and effect until either:

(i) the release of the Final Award on the Merits by the Arbitral Tribunal; or

(ii) further Order of this Tribunal on motion brought by any of the Parties hereto.

8. This Interim Arbitral Award replaces the Interim, Interim Procedural Order issued by the Arbitral Tribunal on 11 December 2003.118

117.
By letter dated 9 February 2004, Claimant contacted JUDr. Karel Cermak ("Cermak"), then Minister of Justice, and conveyed the history of the matter and noted that the Czech Republic could potentially be held liable for damages caused by private businesses. Specifically, Claimant asserted that owing to the inactivity or slow response of the judiciary, a foreign investor may be successful in foreign courts in potential proceedings regarding the failure to protect its investment.119 A copy of the Interim Award was enclosed with the letter. By letter dated 20 May 2004, Cermak noted that bankruptcy proceedings related to the assets of Moravan and Soska were ongoing, as were the proceedings related to the Resolutions Claim. He indicated, inter alia, that the Ministry of Justice would monitor the proceedings regarding the Resolutions Claim for speed and fluency.120
118.
In 2004, Claimant met with Pavel Vosalik, Ambassador of the Czech Republic to Canada, who allegedly indicated to Claimant that he would look into Claimant's case, but never provided any information thereafter. Claimant also sought the assistance of other diplomatic staff at the Czech Embassy in Ottawa and met with Stanislav Benes, Commercial Counsellor, and Vladimir Bartl, Head of the Commercial and Economic division (of the Embassy).121
119.
Claimant wrote letters dated 27 February 2004 to the District Courts in Uherské Hradist e and Zlín. These letters contained requests that, pursuant to the Interim Award, the District Courts terminate or interrupt all enforcements of judgments of third party creditors against LZ and MA on the grounds that Claimant had an ongoing security interest and a first secured charge on the assets of LZ and MA. The letters also enclosed a copy of the Interim Award and the Promissory Note.122
120.
On 27 February 2004, Claimant also wrote to Mgr. Martin Boháček ("Boháček") the judge overseeing the bankruptcy proceedings of LZ at the Regional Court,123 enclosing the Interim Award and the USA. Claimant requested that Boháček (i) issue an interim injunction requesting that Sládek prevent disposition of any assets of LZ; (ii) open proceedings on the nullity of sale contracts for line assets of LZ which were disposed of in the previous 6 months; and (iii) open proceedings on the nullity of any other acts that might encumber the assets of LZ.
121.
Also on 27 February 2004, Claimant filed a motion at the Regional Court for appointment of an interim receiver in respect of MA enclosing the Interim Award. Claimant also requested that the Regional Court (i) enjoin all parties from any disposition of the assets of MA; (ii) open proceedings on the nullity of sale contracts for assets of MA alienated in the previous 6 months; and (iii) open proceedings on the nullity of any other acts that might encumber the assets of MA.124
122.
On 1 March 2004, Claimant delivered the Interim Award to the Cadastral Office in Uherské Hradist e with a request that the Cadastral Office "imprint a seal" in the real estate records maintained by it in respect of LZ and MA so that all sale, mortgaging or encumbering of the real property of the debtor would be banned. The Cadastral Office wrote to Claimant on 11 March 2004 and 14 May 2004 to request additional specifications of the real property in respect of which the registration was requested, and evidence that the Interim Award had become final and enforceable. The Cadastral Office never received a response and so returned the request to Claimant on 11 October 2004.125
123.
In February and March 2004, local newspapers reported that the principals of MA and LZ were facing criminal charges related to the transfer of assets from LZ to another company, CML Plus, whose sole owner was Soska.126
124.
On 30 March 2004, LZ was declared bankrupt and Sládek was appointed as bankruptcy trustee.127
125.
On 19 April 2004, Petr Hajtmar ("Hajtmar") was appointed as preliminary bankruptcy trustee for MA pursuant to Claimant's request of 27 February 2004.128
126.
On 5 May 2004, the Regional Court invited Claimant to confirm whether it intended to pursue the Resolutions Claim. Claimant confirmed to the Regional Court on 24 May 2004 that it did wish to continue with the claim.129 On 26 May 2004, the Regional Court requested that Claimant pay the CZK 1,000 court fee in order to proceed with the Resolutions Claim. The fee was paid by Claimant on 31 May 2004.130
127.
Between 9 June 2004 and 23 December 2004, Claimant and LZ exchanged written submissions with regard to the Resolutions Claim.131
128.
Between 15 June 2004 and 8 July 2004, the Police Commissioner conducted a further investigation into the case arising from Claimant's 10 December 2002 motion. This investigation was ordered by the Chief State Prosecutor pursuant to a request from the Ministry of Justice.132
129.
On 18 June 2004, MA was declared bankrupt and Hajtmar was appointed as bankruptcy trustee.133 As a result of the bankruptcy of MA, LZ was deprived of its rights over the LET Assets (although it still retained their operational use).134
130.

When LZ and MA were declared bankrupt in March and June of 2004, Claimant requested and was granted leave of the tribunal in the Stockholm Arbitration to continue the arbitration proceedings against them on 3 June 2004 and 28 July 2004, respectively.135

131.
On 28 June 2004, Claimant applied for separate satisfaction in the bankruptcy proceedings for MA.136
132.
On 15 July 2004, the Police Commissioner who had been ordered to reopen the case arising from Claimant's motion of 10 December 2002 to initiate criminal prosecution of Soska and Joachimczyk again dismissed Claimant's complaint.137
133.
On 19 July 2004, Claimant appealed the 15 July 2004 dismissal of its motion to initiate criminal prosecution of Soska and Joachimczyk. This appeal was dismissed on 18 August 2004 by the Office of the Regional Prosecutor for the following reasons:

The public prosecutor agrees with the police authority, stating that the matter in hand is exclusively of a commercial-law nature and that the criminal liability of the suspected persons cannot be deduced in connection with the conduct described in the verdict [...]. After assessing the above-mentioned circumstances, it can be stated that the [USA] does not impose an obligation on [MA] to transfer 49% of the shares in [LZ] to FPS free of charge. In a situation where [MA] in accordance with the [USA], undertook to repay the provided loan to FPS, including interest, such procedure would appear to be illogical and completely commercially disadvantageous for [MA].138

134.
On 26 July 2004, Claimant applied for separate satisfaction in the bankruptcy proceedings for LZ.139
135.
Also on 26 July 2004, in response to a request from Claimant for information on the listing of the LET Assets on the bankruptcy list of Moravan, Orbesová informed Claimant that she was unable to provide the information due to the "complete lack of cooperation of the statutory bodies of MA, a.s. and other subsidiaries of [Moravan]".140
136.
On 30 and 31 August 2004, a hearing on the merits was held in the Stockholm Arbitration without the participation of Sládek and Hajtmar notwithstanding that they were duly notified and invited to participate in the Stockholm Arbitration.141
137.
On 29 September 2004, a review hearing was held at the Regional Court in respect of the bankruptcy of MA.142
138.
On 9 December 2004, Claimant received LZ's response to the Regional Court (dated 23 November 2004) with respect to Claimant's Resolutions Claim.143
139.
By letter dated 29 November 2004, the Stockholm Tribunal indicated that it anticipated rendering an award towards the middle of December 2004.144
140.
On 22 December 2004, Claimant requested that the Regional Court postpone the hearing of the Resolutions Claim until Claimant had received the Final Award in the Stockholm Arbitration.145
141.
The Stockholm Tribunal rendered its final award on 30 December 2004 ("Final Award"). It determined that Alberta law governed both the USA and the Promissory Note.146 The Final Award provided:

1. The Arbitral Tribunal hereby declares that Frontier is entitled to a first secured charge against the LET ASSETS and all of the property of [MA] of every nature and kind wheresoever located as of August 15, 2001 until such time as the loan in the amount of 204,170,000 Czech crowns together with interest in the amount of six percent (6%) per annum, payable and compounded monthly on the first day of each and every calendar month in each and every year from and including August 10, 2002 to and including the date upon which all of the principal amount and all interest accrued thereon have been repaid in full;

2. The Arbitral Tribunal hereby orders the trustee in bankruptcy of [MA] and the trustee in bankruptcy of LZ, respectively, immediately upon the delivery of this Final Award to grant to Frontier first secured charges against the LET ASSETS and all of the property of [MA] of every nature and kind wheresoever located all in accordance with the declaration in item 1, above;

3. The Arbitral Tribunal hereby orders that Frontier is entitled to an accounting for the LET ASSETS held, or alternatively, sold, traded, pledged, encumbered, or otherwise disposed of from August 15, 2001 including those sold, traded, pledged, encumbered or otherwise disposed of from January 30, 2004;

4. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier interest on the amount of 204,170,000 Czech crowns payable monthly at the rate of six percent (6%) per annum, payable and compounded monthly on the first day of each and every calendar month in each and every year from and including August 10, 2002 to and including the date upon which all of the 204,170,000 Czech crowns and all interest accrued thereon have been re-paid in full;

5. The Arbitral Tribunal hereby declares that Frontier is entitled to 49% of the shares of LZ, against the consideration of USD 100, payment of which amount is to be made by way of set off against amounts otherwise owing to Frontier by [MA] and LZ under the Promissory Note;

6. The Arbitral Tribunal hereby directs Luis Konski, Esq. of the law firm of Becker & Poliakoff, P.A., 5201 Blue Lagoon Drive, Suite 100, Miami, Florida 33126, USA, in his capacity as trustee [("Konski")], to deliver unconditionally forthwith the share certificates for 49% of the shares of LZ to Frontier in care of its counsel, Burnet, Duckworth & Palmer LLP, Calgary; for which delivery [Konski] shall be reimbursed for reasonable out-of-pocket expenses;

7. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier USD 600,000;

8. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier its costs in this arbitration in the total amount of USD 926,038.55;

9. The compensation for the arbitrators is determined at a total amount of USD 395,124.53, whereof USD 361,525 constitute fees and USD 33,599.53 incurred costs;

10. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier the amount of USD 245,124.53, corresponding to Frontier's share of the advance payments made by the Parties to cover the fees and costs of the arbitrators;

11. The Arbitral Tribunal denies all other claims for relief brought by the Parties.147

142.
On 7 January 2005, Konski notified the Stockholm Tribunal that he had delivered share certificates for 49% of the shares of LZ to Burnet, Duckworth & Palmer LLP, which was also acting as counsel for Claimant in the Stockholm Arbitration, in accordance with the Final Award.148
143.
By letters dated 28 February 2005, Claimant through Tutterova sent letters to JUDr. Ludmila Hanzlikova, ("Hanzlikova") and to Boháček, the judges overseeing the bankruptcy proceedings of MA and LZ, respectively, at the Regional Court, requesting that they exercise their authority and ensure that the Final Award be recognised, in particular, by the bankruptcy trustee. Claimant also quoted the dispositif of the Final award, referred to Article III of the New York Convention, and referred to the BIT.149 Claimant also wrote to Hajtmar and Sládek, requesting with reference to the Final Award that they (i) pay Claimant's share of the costs of the Stockholm Arbitration and the damages awarded as receivables claimed against the corresponding estate of MA or LZ; (ii) conclude contracts of pledge for movable and immovable assets presently owned by MA; and (iii) submit an accounting of the LET Assets.150
144.
On 22 March 2005, Claimant submitted the Final Award and an accompanying submission to the Regional Court with respect to the Resolutions Claim, stating that the Final Award showed (i) that it was already a 49% shareholder of LZ on the date of the LZ General Meeting, and (ii) that the decisions adopted at the LZ General Meeting were not adopted as required by law because Claimant's shares were voted with by an unauthorised person.151
145.
Claimant and LZ exchanged further submissions on the merits of the Resolutions Claim between 22 March and 24 June 2005.152
146.

By letter dated 31 March 2005, Sládek informed Claimant that he refused to comply with Claimant's requests of 28 February 2005. He rejected Claimant's receivable for a number of reasons, including that the claim was based upon a legal relationship with MA, not LZ, and that the Final Award contravened the public policy of the Czech Republic:

In [sic] Article V para (2) letter b) of the [New York Convention] stipulates that the recognition (and enforcement) of a foreign arbitral award shall be denied if the award would contravene public policy of the country where the recognition (and enforcement) is supposed to be executed. In terms of the subject arbitral award, I must state that it indeed contradicts the public policy of the Czech Republic. I see this contradiction in an apparent incompatibility with the Czech mandatory legal regulations, in particular Act No. 328/1991 Coll., on bankruptcy and composition. Since bankruptcy proceedings mean serious intervention in the legal status of a broad spectrum of subjects, they are regulated by a [sic] strictly mandatory legislation which must be unconditionally observed. [...] Since the Arbitral Award fails to respect mandatory legislation regulating bankruptcy proceedings and fundamental legal principles, it is unacceptable in the Czech legal system. Therefore I cannot consider it in the bankruptcy proceedings. (emphasis added)153

147.

On 7 April 2005, Mgr. Vladan Vala ("Vala"), legal advisor to Hajtmar, filed an action on behalf of Hajtmar requesting that the Regional Court annul the Final Award in its entirety on the basis of Section 31(a), (b) and (f) of the Arbitration Act,154 alleging that it ordered Hajtmar to "effect performance that is impossible or impermissible according to domestic law", and explaining that "in bankruptcy proceedings the bankruptcy trustee cannot be ordered to secure a right for one of the creditors which would establish a more beneficial position of this creditor as compared to the other bankruptcy creditors [and that] [s]uch decision is in strict violation of the basic principles of the [Bankruptcy Act]." Vala also noted that "once the bankruptcy order was adjudicated, the arbitral proceedings should have been suspended", with reference to Section 14(1)(c) of the Bankruptcy Act.155

148.
Similarly, by letter dated 8 April 2005, Vala advised Claimant that:

The Creditors Committee of [MA] discussed the Final Arbitral Award issued by the Arbitral Tribunal on December 30, 2004. The Creditors Committee concluded that this Final Award orders the bankruptcy trustee to effect performance that is impermissible according to domestic law. Moreover, in our opinion the arbitration proceeding should have been discontinued once the bankruptcy adjudication order was issued, since the Claimant's alleged rights should have been claimed in bankruptcy proceedings. Due to the above, the Creditors Committee enjoined the bankruptcy trustee to file an action requesting cancellation of the arbitral award. This action was filed today. Since we request that the arbitral award be cancelled in all its points, we are not willing at this time to reimburse the costs of the arbitration to your client. (emphasis added)156

149.
On 11 May 2005, a second review hearing was held at the Regional Court in respect of the bankruptcy of MA, notice of which was published on the Regional Court's Official Board and in the Commercial Bulletin. Minutes from the meeting reflect that Claimant's receivable was not discussed and was transferred to the next review hearing "given the seriousness of this case".157
150.
On 17 May 2005, Claimant, through Tutterova, filed four motions with the Regional Court. The first two motions requested that the Regional Court issue a resolution requiring (i) that Hajtmar and Sládek each submit an accounting of the LET Assets pursuant to the Final Award; (ii) that Hajtmar and Sládek each grant Claimant first secured charges against the LET Assets pursuant to the Final Award; and (iii) that Hajtmar and Sládek cancel the tender process over the assets of MA and LZ that they had jointly announced on or sometime prior to 2 May 2005.158 The second two motions requested interim injunctions to prevent Hajtmar and Sládek from disposing of the LET Assets until the Regional Court had decided on the first two motions noted above.159
151.
On 19 May 2005, Hanzlikova denied Claimant's motion for an interim injunction in respect of the LET Assets in the bankruptcy estate of MA on the grounds that it was not necessary. Hanzlikova explained that (i) the bankruptcy trustee needed court approval to realise any sales of the objects, rights, or other assets used to run the company; (ii) that such court approval had not yet been issued; and (iii) that the court would "carefully consider further action in a way that the rights of either participant [would not] be violated".160
152.
On 23 May 2005, Boháček denied Claimant's motion for an interim injunction in respect of the LET Assets in the bankruptcy estate of LZ. Boháček explained that court authorisation was required for the monetisation of a bankruptcy estate through the sale of the bankrupt party's business. As no authorisation had been issued in this case, Boháček found that the court had no grounds for ordering the interim injunction. Boháček also asserted that a creditor's charge based on the Final Award was unfounded under the New York Convention because recognition and enforcement of an award should be denied "if the award is not legally effective and enforceable pursuant to domestic law and the award would contravene public policy".161
153.

On 1 June 2005, a meeting was held between Hanzlikova, Boháček, Sládek, Hajtmar, and Vala, at the Regional Court. A legal opinion dated 25 May 2005 prepared by Vala ("Vala Opinion") was discussed at this meeting. The Vala Opinion expressed various views as to why the Final Award and Claimant's claim for a first secured charge over the LET Assets should be rejected.162 The Vala Opinion reads, in part:

According to the above-quoted Article V [New York Convention], a Bankruptcy Trustee is entitled to raise his objections in a proceeding against an application petition for recognition and enforcement of an award. However, since the Creditor never initiated any such proceeding (which is incomprehensible to the Bankruptcy Trustee, if the Creditor believes that in the case of this Arbitral Award there are no reasons why recognition and enforcement should be denied), then the Bankruptcy Trustee clearly does not understand why, over a period of more than 4 months, the Creditor was unable to file an application for recognition and enforcement of the subject foreign Arbitral Award.

[…] According to the Bankruptcy Trustee, the bankruptcy adjudication has discontinued the arbitral proceeding. […] [T]he arbitral proceeding could not continue and that the receivables would have had to be claimed in bankruptcy proceedings.

The Creditor did claim cash receivables, but unfortunately, he failed to claim the secured charges pertaining to these receivables.

However, the Creditor did claim this right in the arbitration proceeding, prior to claiming the receivables in this bankruptcy. This means that it knew to claim the secured charges, which generally afford the right to separate satisfaction.

The fact that the Arbitral Award ordered the Bankruptcy Trustee to grant first secured charges to the Creditor is contrary to the respective provisions of the Bankruptcy and Composition Act. It fails to respect the equality of bankruptcy creditors to the extent that after the bankruptcy adjudication, the Bankruptcy Trustee is not entitled to perform acts aimed at securing receivables that arose prior to the bankruptcy adjudication (i.e. receivables that must be claimed). In this sense, the Arbitral Award is contrary to the public policy of this country, which constitutes another reason why the recognition and enforcement of the Arbitral Award must be rejected.

[…]

Until a decision is made with regard to the complaint requesting nullification of the Arbitral Award or until the Creditor files an application requesting recognition and enforcement of the subject Arbitral Award and the respective decision is made, the Creditor is not entitled to any secured charges against assets listed in the bankruptcy estate.163

154.
Minutes from the meeting recorded the following:

The Bankruptcy Trustee of [MA] filed a complaint with this court requesting nullification of the [Final Award].

All parties present agree that the [Final Award] cannot be respected in view of the provisions of § 39, letter b) and § 31, letter f) of Act No. 216/1994 Coll. on bankruptcy proceedings and the enforcement of arbitral awards, because it adjudicates the party to perform acts that are impossible or illegal under domestic law and because, according to Article V.2.B) and Decree No. 74/1959 Coll. on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the recognition or enforcement of the Award would contradict the public policy of the Czech Republic.

This means that in the course of the bankruptcy proceeding, the right to separate satisfaction from the Bankrupt's assets cannot be established for a creditor and therefore the Bankruptcy Trustee can neither conclude a contract of pledge to the benefit of the creditor nor provide any other security for his receivable. Such approach would be in gross violation of the Bankruptcy and Composition Act. Apart from separate satisfaction based on a promissory note (see above), the creditor did not claim any right to separate satisfaction in either of the bankruptcy proceedings; therefore, such claim could not have been reviewed in the review hearing and this creditor is not a separate creditor.164

155.
On 2 June 2005, Hajtmar sent an e-mail to Sup reporting on the 1 June 2005 meeting, as follows:

Yesterday there was a meeting at the court of Brno dealing with the issue of allowing the sale of assets of MA/LZ in conjunction with the application for injunction from the Frontier Company.

[…]

On this meeting was presented a legal opinion from MA side, the analysis of present situation regarding to [Final Award] (and so the answer to the courts prompt). From the analysis and the discussion is clear that requested injunction against the assets has no ground. And will be refused by both judges.

The sale of LZ was approved by the judge and sale of assets held by MA will be approved also. Also MA facility in Otrokovice could be prepared for sale as planned.

Also in discussion was a fact that steps taken by FPS, while taken to protect their interest are not compatible with interest of remaining creditors. (If FPS would be successful the rest of the creditors would get nothing).

And so it is question for creditors of MA and specifically members of Creditors Committee [sic]["CC"] if it is correct that FPS is a member of CC. The question of removal FPS would be presented on the next meeting of CC and it is preferable that members would create their opinion about this. Present situation is as follows; I am expecting delivery of the inventory list from Leges specifically the assets Leges included first (as per signed contract), based on that I will correct the inventory of MA so all possible duplicity would be eliminated. This step has no influence on ongoing process, on dividing of the proceedings from the sale and which trustee would be selling what.165

156.
Also on 2 June 2005, the Regional Court denied Claimant's 17 May 2005 motion for a resolution cancelling the tender process and ordering Hajtmar to submit an accounting of assets and grant a first secured charge to Claimant. Hanzlikova concluded that:

[...] an Award ordering the bankruptcy trustee to grant secured charges against the bankrupt's assets to the benefit of a creditor, cannot be enforced because such act would contradict to the Bankruptcy and Composition Act and as such it would be generally illegal and in breach of the country's public order.166

157.
On 6 June 2005, Claimant through Tutterova appealed Hanzlikova's 19 May 2005 decision denying Claimant's motion for an interim injunction in respect of the LET Assets in the bankruptcy estate of MA to the High Court in Olomouc.167 By resolution dated 27 July 2005, the High Court in Olomouc rejected Claimant's appeal, but observed that the Regional Court had not addressed Claimant's grounds for seeking an interim injunction in its reasons, in particular Claimant's submissions in respect of the Final Award.168
158.
On 6 June 2005, Claimant through Tutterova also appealed Boháček's 23 May 2005 decision denying Claimant's motion for an interim injunction in respect of the LET Assets in the bankruptcy estate of LZ to the High Court of Olomouc.169 This appeal was rejected on 4 August 2005.170
159.
On 9 June 2005, the Regional Court also denied Claimant's 17 May 2005 motion for a resolution cancelling the tender process and ordering Sládek to submit an accounting of assets and grant a first secured charge to Claimant. In his reasons, Boháček stated that the Final Award was contrary to the Bankruptcy Act and, in accordance with the Sections 31 and 39 of Arbitration Act could not be enforced.171
160.
On 9 June 2005, Kaj Hobér, Chairman of the Stockholm Tribunal attested that the Final Award was legally effective and enforceable under Swedish law.172
161.
By motions each dated 16 June 2005, Claimant filed four claims for the enforcement of the Final Award. The first motion was filed at the District Court in Uherské Hradist e and requested that the court order execution of the Final Award against LZ. The second motion was filed at the District Court in Zlín and requested that the court order execution of the Final Award against MA. The third and fourth motions were both filed at the Municipal Court in Brno and requested that the court order execution of the Final Award against Sládek and Hajtmar, respectively. Each of these requests was based upon the provisions of §36 et seq of the Arbitration Act and the Minister of Foreign Affairs Decree No. 74/1959 Coll. on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.173
162.
On 27 June 2005, the Creditor's Committees for LZ and MA accepted an offer of CZK 67,000,000 from Aircraft Industries a.s. to purchase the assets of LZ.174 By Resolution dated 28 June 2005, the Regional Court approved the sale of assets included in the bankruptcy estate of MA. In this Resolution, Hanzlikova stated, in part:

Issues relating to the sale were discussed at a joint meeting held June 1, 2005 between the judges of departments 26 K and 44 K and both bankruptcy trustees in connection with the claim filed by creditor Frontier Petroleum Services Ltd., Canada, based on an arbitral award issued on December 30, 2004 by an arbitral tribunal in Stockholm. The court concluded that this claim did not hinder the sale as part of the joint tender.175

163.
On 4 July 2005, the District Court in Uherské Hradist e ordered execution of the Final Award against LZ on the basis of Claimant's motion of 16 June 2005.176 On 19 July 2005, the court-appointed executor attempted to enforce the specific performance obligations of the Final Award and levied a penalty of CZK 5,000 against LZ for failure to comply.177
164.
On 2 August 2005, Claimant filed a complaint with the Constitutional Court against the Regional Court's Resolution of 28 June 2005 that approved the sale of the assets of MA. This complaint was denied on 20 December 2005 on the basis that Claimant's constitutional rights had not been breached.178
165.
On 5 August 2005, the Municipal Court in Brno rejected Claimant's motion of 16 June 2005 requesting that the court order execution of the Final Award against Hajtmar. Claimant appealed to the Regional Court, where the Municipal Court's decision was upheld on 25 August 2006. Claimant further appealed to the Supreme Court of the Czech Republic, where the Municipal Court's decision was again upheld on 31 March 2009.179
166.
Also on 5 August 2005, the Municipal Court in Brno rejected Claimant's 16 June 2005 motion requesting that the court order execution of the Final Award against Sládek. Claimant did not appeal this decision.180
167.
On August 10, 2005, Claimant filed two complaints with the Constitutional Court against the Regional Court's resolutions of 2 June 2005 and 9 June 2005 denying Claimant's motions for resolutions cancelling the tender process and ordering the bankruptcy trustees to submit an accounting of assets and grant first secured charges to Claimant. These complaints were denied on 20 December 2005 and 17 January 2006, respectively, on the basis that Claimant's constitutional rights had not been breached.181
168.
Sládek appealed the 5 July 2005 order of the District Court of Uherské Hradist e to the Regional Court, where the penalty was struck down and execution of the Final Award pursuant to the District Court's order was declared legally impermissible on 25 August 2006.182 The enforcement was discontinued in its entirety by the District Court on 8 November 2006.183
169.
Also on 8 November 2006, the Regional Court recognised Claimant's receivable with respect to LZ on the basis of an acknowledgement of its existence by Sládek and on the grounds of unjust enrichment and penalty interest in the amount of CZK 3,837,711.40.184
170.
By letter dated 23 November 2005, Sup submitted a complaint to the Prime Minister of the Czech Republic, Ji r i Paroubek, requesting the appointment of an authorised person to review Claimant's case, and indicating that unless financial compensation was provided, the matter would become the subject of arbitration against the Czech Republic. By letter dated 26 January 2006, JUDr. Petr Petrzilek of the Office of the Czech Government, Prime Minister's Expert Department, responded to Claimant, (i) explaining that the judge in charge of the case had been on maternity leave; (ii) describing what steps were available to Claimant to address the delay through the courts; and (iii) indicating that the Czech government was not a party to the Stockholm Arbitration and therefore the Final Award could not be enforced against it.185
171.
On 24 January 2006, a Joint Meeting of the creditors’ committees of Moravan and MA was convened. Sup was present at this meeting and recorded Claimant’s disapproval of the sale of MA. The Creditor’s Committees for MA and Moravan as well as Hajtmar and Orbesová, agreed to proceed with the sale of MA to the sole interested party, Czech Aircraft s.r.o.186
172.
On 25 January 2006, the District Court in Zlín rejected Claimant’s motion requesting that the court order execution of the Final Award against MA.187 Claimant appealed to the Regional Court, where the District Court in Zlín’s decision was upheld, in part, on 15 February 2007.188 The District Court’s decision was upheld to the extent that Claimant’s request for an order of execution of the Final Award with regard to the obligation on the bankruptcy trustees for MA and LZ to submit an accounting of the LET Assets and grant a first secured charge in the LET Assets and other property of MA was denied. The Regional Court modified the District Court’s decision with regard to (i) the obligation to pay interest on the loan under the USA; (ii) the damages award in the amount of USD 600,000 for Claimant’s lost business opportunity; (iii) the arbitration costs in the amount of USD 926,038.55; and (iv) Claimant’s share of the advance payments to cover the fees and costs of the arbitrators in the amount of USD 245,124.53. On 28 May 2007, Claimant further appealed to the Supreme Court.189 According to Mr. Jewitt, on 27 March 2009, the Supreme Court again denied Claimant’s "right to separate (preferential) satisfaction".190 However, according to Respondent, as of 20 July 2009, the Supreme Court’s decision was still pending.191
173.
On 27 February 2006, the Regional Court held a hearing with respect to the Resolutions Claim, which was not attended by LZ. The court announced its decision at the hearing, noting that Claimant was a shareholder in LZ and therefore entitled to file a motion and declaring that the Resolutions adopted at the LZ General Meeting increasing the basic capital and changing the Articles of Association were invalid because the general meeting did not have a quorum and could not validly adopt any resolution.192
174.
On 1 September 2006, Claimant notified Respondent of a dispute under the BIT. The Parties engaged in consultations over the following year but were unable to arrive at an amicable settlement.193
175.
On 28 November 2006, Claimant appealed the 8 November 2006 decision of the District Court in Uherské Hradist e to discontinue execution of the Final Award to the Regional Court.194 On 30 March 2007, the Appellate Division of the Regional Court ("Appellate Division") upheld the parts of the Regional District Court's decision that discontinued execution of the orders under the Final Award directing the bankruptcy trustees of MA and LZ to (i) provide Claimant with an accounting for the LET Assets, and (ii) grant Claimant first secured charges against the LET Assets and all of the property of MA (in accordance with the terms of the USA) ("Order on Security"). The Appellate Division struck down parts of the Regional Court's decision that discontinued execution of the monetary relief claims, including (i) the obligation to pay interest on the loan under the USA, (ii) the damages award in the amount of USD 600,000 for Claimant's lost business opportunity, (iii) the arbitration costs in the amount of USD 926,038.55, and (iii) Claimant's share of the advance payments to cover the fees and costs of the arbitrators in the amount of USD 245,124.53. The Appellate Division noted, however, that while there was no bar to the issuance of an enforcement order, such order could not be executed during bankruptcy proceedings.195
176.
On 21 June 2007, Claimant appealed the 30 March 2007 decision of the Appellate Division of the Regional Court, referring specifically to parts of that decision which upheld the discontinuation of execution of the orders under the Final Award directing the bankruptcy trustees of MA and LZ to (i) provide Claimant with an accounting for the LET Assets, and (ii) grant Claimant first secured charges against the LET Assets and all of the property of MA (in accordance with the terms of the USA). According to Respondent, as at 20 July 2009, this appeal was still pending.196
177.
With respect to MA, on 28 May 2007, the Regional Court recognised Claimant’s receivable in the amount of CZK 229,967,440.69 but rejected Claimant’s claim for separate satisfaction. Hajtmar appeared but did not participate in the hearing. The Regional Court agreed with Hajtmar’s decision to recognise Claimant’s receivable in the amount of CZK 229,967,440.69 but to reject Claimant’s request for separate satisfaction because security in the form of a promissory note did not warrant separate satisfaction under the Bankruptcy Act and because the assets for which separate satisfaction was claimed were not specified.197
178.
By Notice of Arbitration dated 3 December 2007, Claimant commenced this arbitration against Respondent pursuant to the BIT.198
179.
According to Claimant, the assets of MA were sold by the bankruptcy trustees for MA and LZ to Czech Aircraft, s.r.o.199
180.
On 8 September 2008, the Regional Court terminated Hajtmar’s 7 April 2005 action to annul the Final Award on the grounds that it had no jurisdiction to set aside a foreign arbitral award.200
181.
On 25 March 2009, Sládek confirmed that he had recognised Claimant’s receivable in the full amount but classified it as a class 2 receivable without the right to separate satisfaction. According to Claimant, this recognition is essentially pointless because the assets of LZ were sold at considerably less than the value of the receivables.201 By letter dated 28 April 2009, Sládek informed the Regional Court that he had recognised Claimant’s receivable.
182.
In its Memorial, Claimant asserts that in mid-2009 a constitutional appellate court vindicated Claimant’s position with respect to the 19 May 2005 and 23 May 2005 resolutions of the Regional Court denying its motions for interim injunctions in respect of the LET Assets in the bankruptcy estates of MA and LZ.202 Respondent notes that Claimant has not provided a copy of or reference to this ruling and that it is unable to find any basis for Claimant’s assertion.203 A copy of the constitutional appellate court’s decision referred to by Claimant has not been submitted to the Tribunal.

6. RELEVANT PROVISIONS OF THE BIT

183.

The BIT provides, in relevant part:

Article I
Definitions

For the purpose of this Agreement:

(a) the term "investment" means any kind of asset held or invested either directly, or indirectly through an investor of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws and, in particular, though not exclusively, includes:

(i) "movable and immovable property and any related property rights, such as mortgages, liens or pledges";

(ii) "shares, stock [...] or any other form of participation in a company, business enterprise or joint venture";

(iii) "claims to money, and claims to performance under contract having a financial value";

(iv) "intellectual property rights, including rights to […] patents, trademarks as well as trade names, industrial designs, good will, trade secrets and know-how"; and

(v) "rights, conferred by law or under contract, to undertake economic and commercial activity".

Any change in the form of an investment does not affect its character as an investment.

(b) the term "investor" means:

(i) any natural person possessing the citizenship of or permanently residing in a Contracting Party in accordance with its laws; or

(ii) any corporation, partnership, trust, joint venture, organization, association or enterprise incorporated or duly constituted in accordance with applicable laws of that Contracting Party,

provided that such investor has the right, in accordance with the laws of the Contracting Party, to invest in the territory of the other Contracting Party.

(c) the term "returns" means all amounts yielded by an investment and in particular, though not exclusively, includes profits, interest, capital gains, dividends, royalties, fees or other current income;

(d) the term "territory" means:

(i) in respect of Canada, the territory of Canada, as well as those maritime areas, including the seabed and subsoil adjacent to the outer limit of the territorial sea, over which Canada exercises, in accordance with international law, sovereign rights for the purpose of exploration and exploitation of the natural resources of such areas;

(ii) in respect of the Czech and Slovak Federal Republic, the territory of the Czech and Slovak Federal Republic.

Article II
Promotion of Investment

(1) Each Contracting Party shall encourage the creation of favourable conditions for investors of the other Contracting Party to make investments in its territory.

(2) Subject to its laws and regulations, each Contracting Party shall admit investments of investors of the other Contracting Party.

(3) This agreement shall not preclude either Contracting Party from prescribing laws and regulations in connection with the establishment of a new business enterprise or the acquisition or sale of a business enterprise in its territory, provided that such laws and regulations are applied equally to all foreign investors. Decisions taken in conformity with such laws and regulations shall not be subject to the provisions of Articles IX or XI of this Agreement.

Article III
Protection of Investment

(1) Investments or returns of investors of either Contracting Party shall at all times be accorded fair and equitable treatment in accordance with principles of international law and shall enjoy full protection and security in the territory of the other Contracting Party.

(2) Each Contracting Party shall grant to investments or returns of investors of the other Contracting Party in its own territory, treatment no less favourable than that which it grants to investments or returns of investors of any third State.

(3) Each Contracting Party shall grant investors of the other Contracting Party, as regards their management, use, enjoyment or disposal of their investments or returns in its territory, treatment no less favourable than that which it grants to investors of any third State.

(4) Each Contracting Party shall, to the extent possible and in accordance with its laws and regulations, grant to investments or returns of investors of the other Contracting Party a treatment no less favourable than that which it grants to investments or returns of its own investors.

Article IV
Exceptions

The provisions of this Agreement shall not be construed so as to oblige one Contracting Party to extend to the investors of the other Contracting Party the benefits of any treatment, preference or privilege resulting from:

(a) any existing or future agreement establishing a free trade area or customs union;

(b) any multilateral agreement for mutual economic assistance, integration or cooperation to which either of the Contracting Parties is or may become a party;

(c) any bilateral convention, including any customs agreement, in force on the date of entry into force of this Agreement which contains provisions similar to those contained in paragraph (b) above; or

(d) any existing or future convention relating to taxation. […]

Article IX
Settlement of Disputes Between an Investor and the Host Contracting Party

(1) Any dispute between one Contracting Party and an investor of the other Contracting Party relating to the effects of a measure taken by the former Contracting Party on the management, use, enjoyment or disposal of an investment made by the investor, and in particular, but not exclusively, relating to expropriation referred to in Article VI of this Agreement or to the transfer of funds referred to in Article VII of this Agreement, shall, to the extent possible, be settled amicably between them.

(2) If the dispute has not been settled amicably within a period of six months from the date on which the dispute was initiated, it may be submitted by the investor to arbitration.

(3) In that case, the dispute shall then be settled in conformity with the Arbitration Rules of the United Nations Commission on International Trade Law, as then in force.

Article XIII
Application

This Agreement shall apply to any investment made by an investor of one Contracting Party in the territory of the other Contracting Party on or after January 1st, 1955.

7. REQUESTS FOR RELIEF

184.
Claimant requests that the Tribunal grant it the following relief:204

(1) Damages of approximately USD 20,000,000205 as compensation for the losses arising out of Respondent's conduct which it alleges is inconsistent with its obligations contained within Articles II and/or III of the Treaty;

(2) Costs associated with these proceedings, including all professional fees and disbursements;

(3) Costs associated with the arbitral proceedings referred to herein and the Investor's attempts to enforce the orders and awards issued by the previous international arbitral tribunal in its favour before the Courts of the Czech Republic;

(4) Pre-award and post-award interest at a rate to be fixed by the Tribunal;

(5) Payment of a sum of compensation equal to any tax consequences of the award, in order to maintain the award's integrity; and

(6) Such further relief as counsel may advise and that this Tribunal may deem appropriate.

185.
Respondent requests that the Tribunal grant it the following relief:206

(1) A declaration that it does not have jurisdiction over any claim based upon Article II of the BIT;

(2) A declaration that Claimant's claims are dismissed;

(3) A declaration that the Czech Republic has not violated the BIT with respect to Frontier's investment howsoever defined; and,

(4) An order that Frontier shall be liable for all costs of this proceeding, including the Czech Republic's legal costs and expert fees, on a full indemnity basis.

8. SUMMARIES OF THE PARTIES' POSITIONS AND THE TRIBUNAL'S ANALYSES

186.
What follows are summaries of the positions of the Parties and the Tribunal’s corresponding analyses. The summaries of the Parties’ positions are without prejudice to the Parties’ full arguments as submitted in written pleadings and at the hearing, including supporting documents and witness and expert testimony that the Tribunal has taken into consideration in making its determinations.

8.1 JURISDICTION

8.1.1 Respondent's Acceptance of this Tribunal's Jurisdiction and Failure to Raise Jurisdictional Objections in Time

Claimant's Position

187.
Claimant argues that Respondent is estopped from maintaining any objection to the Tribunal’s jurisdiction on the basis that it (i) explicitly admitted the Tribunal’s jurisdiction as recorded at paragraph 2 of Procedural Order No. 1: "it is agreed by the Respondent that the Tribunal has the jurisdiction to hear and decide all the matters referred to arbitration by the Claimant in its Notice of Arbitration dated 3 December 2007"; and (ii) failed to raise its objections until long after it was permitted to do so pursuant to Article 21(3) of the UNCITRAL Rules to the extent that Respondent’s Notice of Appointment of Arbitrator constituted a statement of defence.207
188.

Even if Respondent had not already explicitly admitted jurisdiction, Claimant asserts that it would nonetheless be estopped from pursuing any of its jurisdictional objections because it has waived any such right under applicable rules of international law by not bringing its objections in a timely manner.208

Respondent's Position

189.
Respondent contends that (i) Claimant's arguments regarding Respondent's alleged acceptance of the Tribunal's jurisdiction were first raised in its pre-hearing submissions and are therefore out of time;209 (ii) from the documents relied on by Claimant, the Tribunal cannot draw the inference that "a sovereign State would waive in advance of even seeing Claimant's pleading any jurisdictional objections in the future";210 and (iii) the Tribunal joined Respondent's jurisdictional objections to the merits in paragraph 2.5 of Procedural Order No. 5 after its objections were made; any conclusion that Respondent had waived its jurisdictional objections would contradict that ruling of the Tribunal.211

Tribunal's Analysis

190.
It is helpful to recall the events and submissions relevant to the Parties' dispute regarding Respondent's alleged admission of jurisdiction and its jurisdictional objections.
191.
Respondent received Claimant's Notice of Arbitration on 13 December 2007 and on 14 January 2008 responded with its Notice of Appointment of Arbitrator. In it, Respondent stated, inter alia, that "it [did] not consider the Notice of Arbitration a filing containing a statement of claim pursuant to Article 3(4) letter c) of the UNCITRAL Rules of Arbitration" and that it "[sought] the filing made hereby not to be considered a statement of defence pursuant to Article 19 of the Rules." Respondent also submitted that "it does not believe that the ‘investment' described in Claimant's Notice of Arbitration represents an investment as defined in Article 1 letter a) of the Treaty."212
192.
In a letter to the Tribunal dated 4 July 2008, Respondent, in commenting on a draft version of Procedural Order No. 1 that had been circulated to the Parties, reiterated its position that Claimant had not filed a statement of claim and that its Notice of Appointment of Arbitrator was not intended as a statement of defence in accordance with Article 19 of the UNCITRAL Rules. In case the Tribunal considered Claimant’s Notice of Arbitration as a statement of claim, Respondent requested that it be granted sufficient and reasonable time to prepare a proper statement of defence.
193.
By e-mail dated 22 July 2008, the Tribunal indicated to the Parties that it believed that the Memorial and Counter-Memorials should contain at least all of the particulars that one would usually find contained in statements of claim and defence, and that they could be "regarded as a full statement of a party’s case […]. [It] will usually draw attention to all important aspects of law on which the party intends to rely, or upon which the opposing party may be relying, and may often contain reasonably detailed submissions on the application of relevant legal principles to the evidence and matters in issue."
194.
At paragraph 2 of Procedural Order No. 1 dated 26 September 2008, the Tribunal recorded that "[i]t is agreed by the Respondent that the Tribunal has jurisdiction to hear and decide all the matters referred to arbitration by the Claimant in its Notice of Arbitration dated 3 December 2007."
195.
On 4 February 2009, Procedural Order No. 4 was issued which contained a procedural timetable for the written submissions of the Parties including Claimant’s Memorial and Respondent’s Counter-Memorial.
196.
On 16 May 2009, Claimant submitted its Memorial.
197.
By letter dated 1 June 2009, Respondent advised that it had appointed new counsel, and on 20 July 2009 it submitted its Counter-Memorial in which it raised objections to the jurisdiction of the Tribunal.213
198.
On 7 August 2008, the Tribunal issued Procedural Order No. 5 in which it joined Respondent’s jurisdictional objections to the merits to be decided in the Final Award, and invited Claimant to address Respondent’s objections in its Reply.
199.
Claimant did so, and also submitted that Respondent's objections were made out of time pursuant to Article 21(3) of the UNCITRAL Rules.214 In its Pre-Hearing Memorial dated 25 September 2009, Claimant argued that Respondent had already admitted the Tribunal's jurisdiction as per paragraph 2 of Procedural Order No. 1,215 and that "to the extent the [Notice of Appointment of Arbitrator] constituted a statement of defence", Respondent's jurisdictional arguments are out of time.
200.
The Parties pleaded their cases on jurisdiction in all subsequent rounds of written submissions and at the hearing.
201.
The written submissions phase of this arbitration was designed such that the Parties' first opportunity to set forth their full claims and defences accompanied by factual evidence and witness testimony was Claimant's Memorial and Respondent's Counter-Memorial respectively. Respondent was never invited to file a statement of defence per se, and its Notice of Appointment of Arbitrator was never deemed to be its statement of defence. As such, Respondent's Counter-Memorial was in effect the equivalent to what Article 19 of the UNCITRAL Rules contemplates as the statement of defence.
202.
It is true that, notwithstanding that Respondent appeared to raise a jurisdictional objection in its Notice of Appointment of Arbitrator, it was later recorded in Procedural Order No. 1 that Respondent agreed that this Tribunal has jurisdiction to hear and decide all the matters referred to arbitration by Claimant in its Notice of Arbitration. Be that as it may, and bearing in mind that Respondent changed its legal representatives after Procedural Order No. 1 was issued, it became clear from the earliest appropriate pleading in the procedural timetable (i.e. Respondent's Counter-Memorial) that Respondent did have jurisdictional objections.
203.
At that time, the Tribunal did not consider that Respondent was precluded from raising such objections by either paragraph 2 of Procedural Order No. 1 or Article 21(3) of the UNCITRAL Rules, and allowed Respondent's jurisdictional objections to be included as issues for determination in this arbitration pursuant to Article 21 of the UNCITRAL Rules. The Tribunal also invited Claimant to respond to them, which Claimant did in all of its subsequent submissions and at the hearing.
204.
Accordingly, the Tribunal finds that Respondent raised its objections at the earliest appropriate opportunity according to the procedural timetable established in this case under the UNCITRAL Rules, and that Claimant cannot be said to have suffered prejudice as a result of the timing of Respondent's jurisdictional objections because it has had several opportunities to plead its position both in writing and at the hearing.
205.
Under Article 15(1) of the UNCITRAL Rules the Tribunal enjoys a broad discretion to conduct the arbitration in such a manner as it considers appropriate, provided that the Parties are treated with equality and that at any stage of the proceedings each Party is given a full opportunity of presenting its case. It cannot be said that these two conditions are not fulfilled here with respect to Respondent's jurisdictional objections.
206.
Further, relevant commentary on Article 21(3) of the UNCITRAL Rules provides:

Although Article 21(3), taken alone, appears to place a mandatory time limit on raising objections to jurisdiction, the drafters clearly felt a tribunal in its discretion over procedure [Article 15(1)] or by allowing amendments [Article 20] might permit such pleas to be raised at a later date.216

207.
In light of the foregoing, the Tribunal rejects Claimant's argument that Respondent is estopped from raising any objection to the Tribunal's jurisdiction on the grounds that it explicitly admitted that the Tribunal has jurisdiction to hear the claim, and that it failed to raise its objections in a timely manner under Article 21(3) of the UNCITRAL Rules.
208.
With respect to S.D. Myers Fed. Ct217 and CME,218 that Claimant has submitted as support for its assertion that Respondent's jurisdictional objections are untimely as a matter of international law, the Tribunal considers that the factual matrix of these cases differ significantly from the present case.
209.
S.D. Myers Fed. Ct was a decision of the Federal Court of Canada denying Canada's application for judicial review of a series of awards. Canada referred to a general statement in its statement of defence in which it denied the facts alleged in certain paragraphs of the claimant's statement of claim and put the claimant to the strict proof of every fact alleged in those paragraphs.219 Canada argued that it had made a timely challenge to the jurisdiction of the tribunal because a number of the paragraphs that it had referred to in the statement of claim fell under the heading "Jurisdiction of the Tribunal". The court ruled that in accordance with Article 21(3) of the UNCITRAL Rules, an objection to jurisdiction "must be raised clearly at the outset of the arbitration [and] Canada failed to do so in this case." This Tribunal finds that the pivotal issue in S.D. Myers Fed. Ct was whether Canada's jurisdictional objection was "raised clearly", or, in the words of the court, whether it was a "specific, express objection to jurisdiction". In this case, the Tribunal finds that Respondent's jurisdictional objections have been "raised clearly" in its CounterMemorial, which represents its first opportunity to fully plead its case, and considers them to be timely filed.
210.
In CME,220 the tribunal decided that, in accordance with Article 21(3) of the UNCITRAL Rules, the respondent had waived its jurisdictional objection with respect to one of the claimant's investments by failing to raise it in its statement of defence. The tribunal observed that given that the respondent had expressly raised other jurisdictional objections in its statement of defence and not the later objection, the jurisdictional objection in question was untimely.221 This case differs significantly because Respondent in the present case fully argued all of its jurisdictional objections in its Counter-Memorial. In addition, Respondent did not subsequently raise additional objections to those first raised in its Counter-Memorial.

8.1.2 Articles I(a) and IX of the BIT - Whether ‘Investment' Made and Whether Dispute Has Arisen in Respect of a ‘Measure'

Respondent's Position

211.
Respondent submits that Article IX of the BIT requires Claimant to establish that it has made an investment in the Czech Republic, and that a dispute has arisen in respect of a measure of the Czech Republic that has had an impact on the management, use, enjoyment or disposal of that investment.222 Respondent argues that the Tribunal's jurisdiction ratione materiae is limited to claims directly related to the host state's interference with the investor's bundle of ownership rights over the assets comprising the investment.223 Respondent asserts that Claimant has simply declared that its claims fall within Article III(1) without providing any analysis for such assertions,224 and that it has failed to plead its claims with anything like the precision required by the express terms of Article IX(1).225
212.
Respondent argues that what Claimant is asking the Tribunal to do is to ignore the express terms of Article IX and replace them with the more common formulation of consent to arbitration of the type "any dispute between an investor of one Contracting party and the other Contracting Party in connection with an investment".226 It is Respondent's position that there is no presumption in international law that obligations set out in a treaty must be fully actionable before an arbitral tribunal.227
213.
Respondent contends that the only point made by Claimant in relation to the express terms of Article IX is that "[w]hatever else Article IX may mean, it cannot be read so as to diminish the protections promised to a Canadian investor under Articles II and III"; Respondent argues that such an approach is incompatible with Article 31 of the VCLT.228
214.
With respect to Claimant's "claim to money, in the form of the Final Award",229 Respondent submits that it could not have been part of Claimant's investment until it came into existence on 30 December 2004. Respondent questions how acts of the Czech Republic before 30 December 2004 said to constitute a breach of the BIT impacted upon Claimant's management, use, enjoyment or disposal of Frontier's claim to money in the form of the Final Award.230
215.
Respondent acknowledges that Claimant's contribution of loan capital to LZ is capable of constituting an investment under Article I of the BIT,231 but Respondent believes that Claimant has been very careful not to characterise its investment as such because none of its claims against the Czech Republic concern interference with this contribution of loan capital.232
216.
With respect to Claimant's definition of its investment as set forth in its Pre-Hearing Memorial, Respondent makes the following comments:

(i) With respect to Claimant's alleged entitlements (a) "to a first secured charge over the assets of LZ as security for its loan"; (b) "to acquire 49% of the shares of LZ for nominal consideration"; and (c) "as a shareholder of LZ, to participate in the business of the joint venture" these were asserted by Frontier under the USA and were the subject of the private dispute between Claimant and LZ and MA over which the Stockholm Tribunal had exclusive jurisdiction. Respondent submits that there is no allegation in this arbitration that Respondent interfered in Claimant's enforcement of those aspects of the Final Award against MA and LZ.233 Nor is there any allegation that the Czech Republic interfered with Claimant's attempt to register a security interest during the Stockholm Arbitration;234 and,

(ii) Concerning Claimant's claim to (a) money in the form of the Final Award; and (b) the "aircraft type certificates to be acquired by Frontier through the joint venture", Respondent submits that they are not the subject of any claim in these proceedings. The claim to money in the Final Award has been recognised in the insolvency proceedings related to MA and LZ, and the right to "aircraft type certificates" has never been mentioned before in the context of any of Claimant's claims.235

217.
Respondent has not specifically contested whether the alleged acts or omissions of the Czech Republic complained of fall within the meaning of the term "measure" and has conceded that this term has been defined broadly.236 Rather, Respondent argues that Claimant has failed to identify measures which have "interfered with the management, use, enjoyment, or disposal of [Claimant's] investment". Respondent submits that "whilst there is probably jurisdiction in relation to some of the claims, there is certainly no causation on the basis of that provision in relation to a great number of the aspects of the investment."237 In its closing statement at the hearing, Respondent submitted that:

[t]o be clear about the jurisdictional objections, it would be possible to formulate claims based upon what happened, the money that was spent in the Czech Republic, to be within this Tribunal's jurisdiction. Our jurisdictional objections have been designed to put the Claimant to the discipline which it is obliged to be put to, to plead its claims based upon the provision which gives this Tribunal jurisdiction. It hasn't done so, and it hasn't done so because of the way it would expose itself, as I had mentioned in the opening submissions, to very obvious flaws in its causation arguments in particular, but also in respect of other aspects of the Treaty which is relied upon; in other words, the other obligations it's relying upon.238

Claimant's Position

218.
Claimant submits that the term "investment" found in Article I(a) of the BIT is satisfied in this case, as follows:

(i) the payments made to MA and Davidová between 18 April 2001 and 14 August 2001 constitute an "asset held or invested" in the Czech aviation industry in the Czech Republic;239

(ii) the pledge in the USA whereby Claimant advanced the funds necessary to acquire the LET Assets in exchange for a first secured charge constitutes an interest in "moveable and immoveable property and any related property rights, such as mortgages, liens or pledges";

(iii) the agreement in the USA that after all of the LET Assets are transferred to LZ, Claimant was to acquire 49% of the shares of LZ for nominal consideration constitutes "shares, stock, bonds and debentures or any other form of participation in a company, business enterprise or joint venture";

(iv) Claimant's claim to money in the form of the Final Award against both MA and LZ constitutes "claims to money, and claims to performance under a contract having a financial value";

(v) the contract for the acquisition of the aircraft type certificates constitutes "intellectual property rights, including rights with respect to copyrights, patents, trademarks as well as trade names, industrial designs, good will, trade secrets and know-how"; and,

(vi) the agreement that both Claimant and MA as shareholders of LZ shall participate in the business of LZ constitutes "rights, conferred by law or under contract, to undertake any economic and commercial activity".240

219.
Article IX of the BIT provides that any dispute "between one Contracting Party and an investor of the other Contracting Party relating to the effects of a measure taken by the former Contracting Party on the management, use, enjoyment or disposal of an investment made by the investor" that cannot be settled amicably shall be submitted to UNCITRAL Rules arbitration.
220.
Claimant submits that it has "made out a prima facie case demonstrating in considerable detail how the myriad failings of the Czech legal regime, and of Czech officials, resulted in the substantial deprivation of Claimant's management, use, enjoyment and disposition of its investments" and that the term "measure" refers broadly to any acts or omissions attributable to a state party under an international trade or investment agreement.241 Claimant also asserts that, whatever else Article IX may mean, it cannot be read so as to diminish the protections promised to a Canadian investor under Articles II and III of the BIT.242
221.
Claimant submits that the Tribunal should interpret the text of the BIT broadly, so as to favour the protection of covered investments.243 Claimant contests Respondent's narrow construction of Article IX as being inconsistent with the object and purpose of an investment promotion and protection treaty.244 Claimant asserts that the terms "management, use, enjoyment or disposal of an investment" should not be construed in isolation from the standards the BIT accords to investors when Article 31 of the VCLT requires these terms to be construed in context, taking into account how these standards are fulfilled.245
222.
Claimant contends that by arguing that only the loan Claimant made under the USA is capable of being defined as an investment, Respondent is relying upon the outcome suffered by Claimant as a result of Respondent's failure to properly protect its investment such that Claimant could not realise the fruits of its investment.246 Claimant argues that Respondent has already admitted that Claimant is a protected "investor" and made a protected "investment" under the BIT at paragraph 4 of its Notice of Appointment of Arbitrator.247

Tribunal's Analysis

223.
There is little doubt that the term "measure" generally encompasses both actions and omissions of a state in international law. The ILC Articles provide that an internationally wrongful act of a state may arise by "conduct consisting of an action or omission." The Commentary to the ILC Articles explains that "[c]ases in which the international responsibility of a State has been invoked on the basis of an omission are at least as numerous as those based on positive acts, and no difference in principle exists between the two". The Commentary to the ILC Articles also sets out that "it may be difficult to isolate an "omission" from the surrounding circumstances which are relevant to the determination of responsibility" and that, in certain cases, it may be the combination of an action and an omission which is the basis for responsibility.248
224.
In the Fisheries Case (Canada v. Spain),249 the ICJ upheld the proposition that "in its ordinary sense the word ["measure"] is wide enough to cover any act, step or proceeding, and imposes no particular limit on their material content or on the aim pursued thereby."250
225.

In Eureko v . Poland,251 the tribunal ruled that the term "measure" in a BIT provision similar to the one before this Tribunal252 encompassed both actions and omissions by the respondent state. The tribunal stated that "[i]t is obvious that the rights of an investor can be violated as such by the failure of a Contracting State to act as by its actions", referring to similar findings by numerous other international arbitral tribunals.253 Claimant also asserts that the award in Saipem v. Bangladesh demonstrates how the failure of a state to ensure that an international arbitration award is recognised and enforced may be characterised as a "measure" subject to that state's obligations under a BIT.254

226.
Claimant argues that Oil Fields of Texas Inc. v. NIOC supports the proposition that various judicial acts may be properly characterised as "measures affecting property rights".255 However, the Oil Fields case specifically addressed the question of whether a judicial decision could amount to a "measure of appropriation". The tribunal in Oil Fields noted that it took into account that it was impossible for Claimant to challenge the judicial decision in question in Iran, and held that the order in question - issued by an Iranian court - amounted to a permanent deprivation of Claimant's rights.256
227.
The claims asserted by Claimant in this case are, in broad terms,257 based upon (i) the alleged failure of the Regional Court to respond to Claimant's application to invalidate the LZ Resolutions; (ii) the allegedly flawed decision-making process of the bankruptcy judges; (iii) the alleged failure of various Czech officials to exercise their authority to remedy the treatment being received by Claimant, and to assist it in preserving its investment (referring specifically to the handling of the criminal complaint, the commercial registry complaint, and the failure of the Ministry of Industry and Trade through the CKA to enter into negotiations with Soska); and (iv) the failure of Respondent's legal system to comply with Respondent's international obligations under the New York Convention to maintain an effective means for enforcement of an international tribunal's orders and awards.
228.
In light of the generally accepted rule that the ordinary meaning of the term "measure" includes acts and omissions, it appears that there would be no difficulty in construing the acts and omissions that form the basis of Claimant's claims as "measures". This is not contested by Respondent.
229.
Respondent does contest whether Claimant has satisfactorily established that this dispute relates to the effects of a measure taken by Respondent on the management, use, enjoyment, or disposal of an investment made by Claimant. Respondent's position is that Claimant has not been able to identify measures taken by the Czech Republic that have interfered with the management, use, enjoyment, or disposal of Claimant's investment under each and every one of its claims. Respondent sets out specifically in which instances it believes Claimant has failed to establish such a connection (see supra paragraphs 216217). Claimant for its part, argues that "[i]t is abundantly clear [...] that the dispute between the parties concerns an accumulation of acts of omission committed by the Respondent that have permanently impaired Frontier's ability to manage, use, enjoy or dispose of its investment in the Czech Republic (from exercising its right to participate in the joint venture to having its property interests in the LET Assets enforced). […] While under the control and direction of Soska, MA and LZ fundamentally breached the terms of the USA [...]. It was the failings of the Czech legal regime, however, which prevented Frontier from protecting its investment when it became apparent that its erstwhile joint venture partner was acting fraudulently."258
230.
The Tribunal considers that Claimant has stated in sufficiently clear terms what it alleges to constitute measures taken by Respondent and what comprises its investment in the Czech Republic. The question is then whether there exists the requisite nexus between the two to establish the Tribunal's jurisdiction ratione materiae under Article IX . Respondent acknowledges that there is one "measure" taken by Respondent that may have a conceivable connection to Claimant's investment: "Claimant says that the Czech Republic interfered with its entitlement to a first secured charge when the Czech courts declined to register the security interest over LZ's assets following the Final Award. […] Save for [this claim], none of the Claimant's other claims have any conceivable connection to its investment as belatedly described in its Pre-Hearing Submission."259
231.
This Tribunal accepts that Claimant's original investment consisted of the payments made to MA and Davidová between 18 April 2001 and 14 August 2001, which were transformed into an entitlement to a first secured charge in the Final Award. The Tribunal also notes that Article 1(a) of the BIT provides that "[a]ny change in the form of an investment does not affect its character as an investment". Accordingly, by refusing to recognise and enforce the Final Award in its entirety, the Tribunal accepts that Respondent could be said to have affected the management, use, enjoyment, or disposal by Claimant of what remained of its original investment. Further, Article IX refers to "a measure" in the singular, such that this Tribunal's jurisdiction ratione materiae may be established over this dispute if Claimant shows that it relates to the effects of at least one measure taken by Respondent on the management, use, enjoyment, or disposal of its investment.
232.
The issues that Respondent has raised under this jurisdictional objection overlap to a significant extent with the merits of Claimant's claims, particularly concerning questions of attribution and causation. Respondent appears to acknowledge this as its argument that all but one of Claimant's claims have no conceivable connection to its investment is made under the heading "The Significance of the Claimant's Description of its Investment for the Merits of its Claims".260 Accordingly, the Tribunal will address the issues raised in this section as part of the merits, to the extent necessary.
233.
In view of its findings in paragraphs 230 and 231 that an investment was made by Claimant and that a dispute arose in respect of a measure it follows that Respondent's jurisdictional objections have not been established. The Tribunal therefore concludes that it has jurisdiction to hear Claimant's claims.

8.1.3 Article II(1) of the BIT - Existence of Enforceable Obligations Relating to Promotion of Investment

Claimant's Position

234.

Claimant asserts that Article II(1) of the BIT imposes a positive obligation upon the Czech Republic with respect to the establishment of favourable conditions for Canadian investors to make investments in its territory, and, together with Article III(1), should be construed as imposing an ongoing obligation upon the Czech Republic to ensure that it has taken the necessary steps to create and maintain favourable investment conditions.261 It is Claimant's position that this "obligation subsists on the part of the Host State, post-establishment, because the investor relied upon the continuing promise of the Host State to maintain favourable conditions when making the decision to establish its investment.262

235.
Claimant further submits that if the Parties had actually intended for admission and establishment measures to be excluded from the application of the BIT, or from dispute settlement under the BIT, they would have expressly said so.263 Claimant considers that there is no indication in Article IX that a claim cannot be brought in respect of the host state's failure to honour its obligations under Article II(1), so long as the impugned measure was neither a decision taken by a host state pursuant to a new, non-discriminatory establishment measure, nor the measure itself.264
236.
At a minimum, Claimant argues, "favourable conditions" for foreign investment include (i) a local court system in which criminal complaints are addressed fairly and efficaciously and emergency petitions for relief do not languish before the courts for years before the provision of a belated answer; (ii) a transparent, up-to-date and reliable local registry system, both for corporate affairs and registration and for property registration; (iii) bankruptcy trustees conducting themselves in accordance with accepted professional norms and applicable international law; and (iv) a promise that the orders and awards of international arbitral tribunals will be respected and enforced in compliance with a Party's international obligations, such as those included in the New York Convention. Claimant asserts that each of these conditions make up the framework of a transparent, stable, and secure investment environment, which is exactly what was promised to Claimant by Respondent, through its agents, officials, and its promotional materials, when Claimant was considering whether to invest in the Czech aircraft industry. Claimant asserts that it relied upon the existence of such commitments and made its decision to invest with sufficient prudence, after having been involved with Soska and MA in their original joint venture with MA and addressing risks inherent in dealing with a local partner by including a suitable arbitration clause in the USA.265
237.
Claimant has stated its position with respect to how its claims under Article II of the BIT relate to its claims under Article III of the BIT over the course of these proceedings as follows:
238.
In its Reply Memorial, Claimant submits that:

The two standards [referring to full protection and security and fair and equitable treatment] are far from being mutually exclusive; indeed, they can often overlap considerably. Similarly, as indicated by Claimant in its Memorial, the protection contained within Article II:1 of the Treaty need not serve as a basis for establishing an independent breach (especially not in the circumstances of the instant case). While the Claimant disagrees that this provision can never be enforced against a Treaty party, in this case the primary function of the provision is essentially to reinforce the scope and content of the fair and equitable treatment standard.266

239.
Claimant also submits that "[w]ithin the context of this case, it was the obligation to provide full protection and security which was supposed to have ensured that the favourable conditions for investment that the Respondent was obliged to maintain, under Article II:1, were indeed maintained."267
240.
In its Pre-Hearing Memorial, Claimant sets forth examples of "favourable conditions" that it alleges that Respondent failed to provide in violation of Article II(1), which it repeats in its Post-Hearing Memorial (see supra paragraph 236).268
241.
In its opening submissions at the hearing, Claimant stated that "[t]he first protection we have referred to in our submissions has been Article II(1) […]. We say simply that it is consistent with the preamble and other protections in Article III. They probably overlap. We make no great to do about invoking Article II(1), although we say emphatically that Article II(1) does extend a specific form of protection to investors: the creation of favourable conditions.269 In its closing statement at the hearing, Claimant did not discuss Article II(1).
242.
In its Post-Hearing Memorial, Claimant states that Article II(1) of the Treaty can be regarded as reinforcing - if not broadening - the scope of the fair and equitable treatment standard owed by Respondent to Frontier.270
243.
In its Reply to Respondent's Post-Hearing Memorial, Claimant submits that "Canadian investors are entitled to expect that all Czech officials involved in this case exercise their delegated discretion in a manner consistent with these standards [referring to full protection and security and fair and equitable treatment] as part and parcel of the promise of these standards and of the favourable conditions for investment promised under Article II(1) of the Treaty."271

Respondent's Position

244.
Respondent asserts that the obligations under Article II(1) are related to the admission of investments and are not obligations of result that would be enforceable against the Contracting Parties, and that this is made "abundantly clear" by the language of Articles II(2) and (3). Respondent notes that Article IX defines the scope of the jurisdiction ratione materiae of the Tribunal in terms of measures impacting upon existing investments, rather than claims relating to the admission of investments. Therefore, Respondent submits, any claim founded upon Article II(1) of the BIT is manifestly outside the jurisdiction of the Tribunal.272 Respondent also notes that Claimant has clarified that its claim rests on two grounds, one arising from the obligation to provide full protection and security and the other arising from the obligation to provide fair and equitable treatment, and that therefore it is difficult to comprehend the relevance of Article II to the claims submitted by Claimant.273

Tribunal's Analysis

245.
Articles II(1) and (2) refer to the admission of investments and Article II(3) refers to the enactment of laws in connection with the establishment or acquisition of a business enterprise. Article III outlines the protections that apply to investments that have already been established. The jurisdiction ratione materiae of this Tribunal as defined by Article IX(1) of the BIT refers to established investments, i.e. "an investment made by the investor". In light of this text, the Tribunal concludes that Article II(1) does not create an obligation with respect to existing investments that would be enforceable against the Contracting Parties. The wording of Article IX(1) - "an investment made by the investor" - makes this clear.
246.
In any event, the Tribunal considers that it is not necessary to determine whether Article II of the BIT creates an enforceable obligation in light of the fact that Claimant does not appear to raise independent claims under that provision. Claimant's comment at paragraph 37 of its Reply Memorial is of note, i.e. that "the protection contained within Article II:1 of the Treaty need not serve as a basis for establishing an independent breach (especially not in the circumstances of the instant case)" and "[w]hile the Claimant disagrees that this provision can never be enforced against a Treaty party, in this case the primary function of the provision is essentially to reinforce the scope and content of the fair and equitable treatment."

8.1.4 Articles III(2) and (3) of the BIT and Article VI(1) of the U.S./Czech Republic BIT - Operation of Most-Favoured Nation Provision

Claimant's Position

247.

Claimant submits that, should the Tribunal conclude that it lacks jurisdiction on the basis of any of Respondent's objections, it should find that Claimant is entitled to benefit from the broader terminology found in the dispute settlement provision of Article VI(1) of the Treaty Between the Czech Republic and the United States of America for the Reciprocal Encouragement and Protection of Investment ("US-Czech Republic BIT") by operation of the most-favoured nation ("MFN") provision at Article III(2) and (3) of the BIT, as limited by Article IV.274 Article VI of the US-Czech Republic BIT provides, in part:

1. For purposes of this Article, an investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to (a) an investment agreement between that Party and such national or company; (b) an investment authorization granted by that Party's foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by this Treaty with respect to an investment.

Respondent's Position

248.

Respondent argues that its offer of consent to arbitration is contained in Article IX of the BIT and the arbitration agreement between Respondent and Claimant was perfected upon Claimant's filing of its Notice of Arbitration on 3 December 2007. Respondent asserts that Claimant cannot seek to modify the terms of the arbitration agreement unilaterally by recourse to the MFN clause of the BIT.275

249.
Further, Respondent contends that even if Claimant could rely on the MFN clause, the terms of Article III(2) indicate that it cannot be invoked in respect of jurisdictional matters, i.e. the treatment of investments in the Contracting Party's territory cannot, in accordance with the ordinary meaning of those terms pursuant to Article 31 of the VCLT,276 encompass matters relating to the jurisdiction of an international tribunal established under Article IX of the BIT. Respondent notes that when contracting state parties wish to include jurisdictional matters within the scope of an MFN clause, they do so expressly.277
250.
Respondent also submits that Claimant's MFN arguments are made out of time; Claimant could have articulated this basis for jurisdiction in its Notice of Arbitration and in its Memorial, but did not do so.278
251.
Finally, Respondent argues that Claimant's reliance on the MFN clause of the BIT does not rectify Claimant's failure to identify the specific assets that are said to constitute an investment pursuant to Article I(a) of the BIT and to demonstrate that acts attributable to the Czech Republic have impaired those assets by reference to a demonstrable loss.279

Tribunal's Analysis

252.
Given that the Tribunal has not found its jurisdiction to be lacking on the basis of Respondent's objections, the Tribunal does not find it necessary to make a determination with respect to the Parties' arguments regarding the operation of the MFN provisions in Articles III(2) and (3) of the BIT.

8.2 MERITS - INTERPRETATION OF THE BIT PROVISIONS

253.
In assessing the Parties' arguments on the interpretation of the relevant BIT provisions as well as Claimant's treaty violation claims, this Tribunal's task is limited to applying the relevant provisions of the BIT as far as necessary in order to decide on the relief sought by the Parties.

8.2.1 Article III(1) - Full Protection and Security

Claimant's Position

254.

Claimant submits that the obligation of full protection and security requires a host state to maintain a regulatory and commercial framework that ensures full protection and security for foreign investments at all cost. Claimant asserts that prima facie evidence of a host state's failure to provide full protection and security is manifested in the fact of insufficient government action, combined with contemporaneous loss or damage to the investor's ability to manage, use, enjoy, or dispose of its investment.280

255.

Claimant rejects Respondent's argument that it is only obliged to provide police protection on the ground that according to the BIT, Respondent is obliged to provide "full protection and security" in accordance with principles of international law which is in no way restricted to customary international law. Claimant notes that there is authority for its position that full protection and security extends beyond protection from physical violence.281 According to Claimant, the host state's obligation is one of due diligence, requiring its constant vigilance in ensuring that the regulatory and commercial legal protections it has put in place function efficiently and effectively.282 Failure to establish or maintain such reasonable measures of protection can be justified on rare occasions, but only on the basis of a pressing and reasonable public policy objective.283 While this duty should not be extended to become a de facto "all risks" insurance policy for investors, Claimant also argues that it should not be confined to situations involving "a violent mob or insurrection".284

256.

Claimant asserts that pursuant to this obligation under the BIT, Respondent should have ensured that its legal and political institutions operated as well as they had been advertised as operating. As such, Respondent was obliged to maintain (i) a working registry system; (ii) courts capable of providing urgent relief to a defrauded shareholder; (iii) police inspectors prepared to fully and finally investigate allegations of commercial fraud, even when made by a foreigner against a local businessman; and (iv) bankruptcy judges who do not prejudge issues while partaking in ex parte communications with parties adverse in interest to the primary (foreign) creditor".285 Claimant relies upon Lauder v. Czech Republic for the proposition that the obligation to accord full protection and security to an investment extends to the host state's ability to furnish the investor with an effective and efficient judicial system thereby enabling the investor to obtain a timely and proficient adjudication of its rights, in keeping with international standards.286

Respondent's Position

257.

Respondent rejects Claimant's assertion that the host state's obligation is one of due diligence, requiring its constant vigilance to ensure that the regulatory framework and commercial legal protections it has put in place for the benefit of a foreign investor function efficiently and effectively, noting that no tribunal has ever adopted this interpretation.287 Respondent also objects to the assertion that it is under an obligation to ensure that a regulatory and commercial framework to ensure full protection and security for foreign investments is maintained at all cost, noting the subjectivity of the level of protection and security that might be expected by a particular investor.288

258.

Respondent explains that the vast majority of investment treaty awards have limited the obligation of full protection and security to ensuring the physical safety of the investment property and personnel in the host state consistent with the resources available to the host state, which Respondent notes is in line with the historical development of the standard in customary international law.289 Respondent asserts that it is only in this context that it is correct to characterise the obligation as one of due diligence.290 While it is clear that this obligation extends to third parties (in so far as states have an obligation of due diligence to protect property and personnel from the violent acts of mobs or armed militias), Respondent contends that it cannot properly be said to extend to "other non violent acts by third parties, such as commercial acts of the private business partners of the foreign investor."291

259.

Respondent contends that even if on the basis of Lauder, "full protection and security" could be extended to the host state's judicial system to allow assessment of its effectiveness by reference to international standards, the decisions of the Czech Supreme Court and Constitutional Court not to enforce the Order on Security in the Final Award is consistent with the major legal systems of the world and with the Council of Ministers of the European Union regulation on insolvency proceedings ("EC Regulation").292

Tribunal's Analysis

260.

Most bilateral or multilateral treaties dealing with the protection of investments contain clauses with the same or similar wording as the full protection and security clause in Article III(1) of the BIT.293 Some omit the adjective "full", others put "security" before "protection" and some refer to "most constant protection and security", but these variations do not appear to carry any substantive significance.294

262.

It is not disputed that the standard of full protection and security relates to the investor's physical safety, nor is it particularly relevant to the circumstances of this case.296 In a number of cases tribunals have suggested that the standard of full protection and security applies exclusively or preponderantly to physical security and to the host state's duty to protect the investor against violence directed at persons and property stemming from state organs or private parties.297 For example, in Saluka, the Tribunal said:

The "full protection and security" standard applies essentially when the foreign investment has been affected by civil strife and physical violence. […] [T]he "full security and protection" clause is not meant to cover just any kind of impairment of an investor's investment, but to protect more specifically the physical integrity of an investment against interference by use of force.298

264.
In the ELSI case301 before the ICJ, a treaty guarantee of "the most constant protection and security" was applied to a complaint concerning the time taken (16 months) for a decision on an appeal against an order requisitioning the factory at issue. While the ICJ's Chamber rejected the argument on factual grounds,302 this decision indicates that "protection and security" is not restricted to physical protection but extends to legal protection through domestic courts.
265.
CME and Lauder both indicate that the principle of protection and security is relevant to the protection of legal rights including the availability of a judicial system that protects the investor's interests. The tribunal in CME applied the full protection and security clause of a BIT between the Czech Republic and the Netherlands and observed that:

The host State is obligated to ensure that neither by amendment of its laws nor by actions of its administrative bodies is the agreed and approved security and protection of the foreign investor's investment withdrawn or devalued.303

266.

Similarly, in Lauder304 the tribunal found that:

The investment treaty created no duty of due diligence on the part of the Czech Republic to intervene in the dispute between the two companies over the nature of their legal relationships. The Respondent's only duty under the Treaty was to keep its judicial system available for the Claimant and any entities he controls to bring their claims[.]305

267.

In Siemens306 the tribunal derived additional authority for the proposition that "full protection and security" extends beyond physical security from the fact that the applicable BIT's definition of investment applied also to intangible assets:

As a general matter and based on the definition of investment, which includes tangible and intangible assets, the Tribunal considers that the obligation to provide full protection and security is wider than "physical" protection and security. It is difficult to understand how the physical security of an intangible asset would be achieved.307

268.
On the basis of the wording of Article III(1) of the BIT, "full protection and security" and general international law appear as two discrete standards. By contrast, the fair and equitable treatment clause of Article III(1) is supplemented by the words "in accordance with principles of international law". Whatever the exact meaning of this reference, the fact that it does not qualify the full protection and security standard is an argument against the latter standard being regarded as equivalent to customary international law.
269.
There is broad agreement that the obligation to provide protection and security does not create an obligation of result or absolute liability, as noted in the ELSI case:308

The reference [...] to the provision of "constant protection and security" cannot be construed as the giving of a warranty that property shall never in any circumstances be occupied or disturbed.309

270.
Rather, as noted by Claimant,310 the standard is one of "due diligence":

[T]he standard provides a general obligation for the host State to exercise due diligence in the protection of foreign investment as opposed to creating "strict liability" which would render a host State liable for any destruction of the investment even if caused by persons whose acts could not be attributed to the State.311

271.
In Pantechniki, the tribunal applied a modified objective standard of due diligence in a situation of public violence. It found that liability in a situation involving civil strife depended on the host state's resources.312 However, there are no authorities which indicate that other situations, not involving violence, would warrant the application of a relative standard.
272.
The tribunal in Parkerings analysed the host state's duty under the full protection and security standard to make its judicial system available in the following terms:

The Respondent's duty under the Treaty was, first, to keep its judicial system available for the Claimant to bring its contractual claims and, second, that the claims would be properly examined in accordance with domestic and international law by an impartial and fair court. There is no evidence - not even an allegation - that the Respondent has violated this obligation.

The Claimant had the opportunity to raise the violation of the Agreement and to ask for reparation before the Lithuanian Courts. The Claimant failed to show that it was prevented to do so. As a result, the Arbitral Tribunal considers that the Respondent did not violate its obligation of protection and security under Article III of the BIT.313

8.2.2 Articles II(1) and III(1) - Creation of Favourable Conditions and Fair and Equitable Treatment

Claimant's Position

274.
As set forth above (see supra paragraphs 234-243), it is Claimant's position that Article II(1) can be regarded as reinforcing, if not broadening, the scope of the fair and equitable treatment standard.314 Claimant asserts that two fundamental obligations arise from the application of Articles II(1) and III(1) to the facts of the present dispute: first, Respondent must encourage the creation of favourable conditions for investment and honour any legitimate expectation generated thereby; second, Respondent must exercise due diligence in maintaining a transparent, stable and predictable investment climate.315
275.

Claimant asserts that from the fair and equitable treatment standard flows a duty of fidelity to the principle of good faith, which requires a state to ensure that its officials are exercising their authority in a reasonable and fair-minded manner that is neither arbitrary nor unjust.316 Claimant asserts that there is consensus about the entitlement of a foreign investor to hold a legitimate expectation that the state, in promoting investment, is prepared to take reasonable steps to ensure that its officials exercise any discretion delegated to them in good faith and in a reasonable and fair-minded manner. Claimant disagrees with Respondent's position that it is unreasonable for an investor to form legitimate expectations based solely on the promises made by a state by way of international agreement and that such expectations may only be made upon specific assurances provided by state officials.317

276.
Claimant argues that accordingly, it held legitimate expectations in 2001 and 2002 that "favourable conditions" existed for it and its investments, including an effective and internationally competitive legal regime.318 Claimant specifies that "it was entitled to expect that the means existed for its reasonable requests for assistance (such as a serious investigation of its criminal fraud complaints or good faith review of the interim measures of protection it was never able to effectuate)", and "that its requests and petitions would be considered in a manner consistent with both the standards of fairness and protection set out in the BIT, but also with general principles of international law, such as the principle of good faith, and with other principles of international law, as required under Article III(1) [of the BIT]".319
277.
Claimant also advances that, as a signatory to the New York Convention, Respondent holds itself out to foreign investors and traders as essentially being a "fully paid member" of the modern regime for international arbitration whose business and regulatory climate are conducive to successful foreign investment.320
278.

Claimant rejects Respondent's position that the reference to "principles of international law" in Article III(1) refers only to customary international law. Claimant submits that the sensible approach is to accord these words their plain and ordinary meaning in context, and in light of the liberalising object and purpose of the BIT. Thus, Claimant concludes that international arbitral law and practice, and the general principle of good faith, should be considered.321 However, regardless of whether fair and equitable treatment is owed as a matter of customary international law, or as part of an autonomous treaty standard, Claimant argues that fair dealing, reasonableness, and fidelity are always "part and parcel" of the good faith exercise of public authority owed by all states to foreign investors under the fair and equitable treatment standard.322

Respondent's Position

279.

Respondent posits that while Claimant has set out what it considers to be the content of Articles II(1) and III(1),323 it has not explained how specific acts attributable to the Czech Republic have breached those Articles and caused an injury to Claimant's investment.324 While Respondent acknowledges that the standards of the BIT can operate to protect legitimate expectations founded upon the host state's contractual commitments to the investor, or other forms of binding promises recognised by the host state's administrative law, those standards cannot be invoked as the source of the legitimate expectations. Respondent argues that Claimant disregards the high threshold for a finding of liability on the basis of the obligation to accord fair and equitable treatment and pleads its claim on the basis that any acts of state not meeting its own approval must be condemned as violations of international law.325

280.

Respondent refers to the guidance provided in Continental as to the form of the state's conduct that may generate a reasonable legitimate expectation as applied within the fair and equitable treatment standard, which Respondent notes is consistent with comparative jurisprudence on legitimate expectations in national and supranational legal systems:

[I]n order to evaluate the relevance of [the concept of reasonable legitimate expectations] applied within Fair and Equitable Treatment standard and whether a breach has occurred, relevant factors include:

i) the specificity of the undertaking allegedly relied upon [...] which is mostly absent here, considering moreover that political statements have the least legal value, regrettably but notoriously so;

ii) general legislative statements engender reduced expectations, especially with competent major international investors in a context where the political risk is high. Their enactment is by nature subject to subsequent modification, and possibly to withdrawal and cancellation, within the limits of respect of fundamental human rights and jus cogens;

iii) unilateral modification of contractual undertakings by governments, notably when issued in conformity with a legislative framework and aimed at obtaining financial resources from investors deserve clearly more scrutiny, in the light of the context, reasons, effects, since they generate as a rule legal rights and therefore expectations of compliance[.]326

281.
According to Respondent, Claimant provides little evidence of concrete expectations that were generated by the acts or omissions of state officials in the Czech Republic; Respondent submits that this is because there were none. Respondent explains that Claimant had no contractual relationship with any state agent or entity and no state agent or entity made a representation to Claimant upon which Claimant subsequently relied. Respondent asserts that the closest Claimant comes to articulating the basis for its expectations is the assertion in its Memorial that Jewitt perused the general promotional literature on the Czech Republic as a place to do business. This alone, Respondent argues, could never generate legitimate expectations capable of founding a cause of action based upon an investment protection standard.327 Furthermore, Respondent submits that the evidential basis for any such expectation has been discredited as Claimant did not even produce the documents it purported to rely upon and, moreover, Jewitt testified that he had no specific knowledge of the arbitration regime in the Czech Republic when he signed the USA.328
282.
Respondent argues that the source of Claimant's alleged expectations is not even akin to legislation of general prescription which, unlike the general promotional literature on the Czech Republic, contains norms that are binding. Respondent also notes that the principles articulated by the tribunal in Continental are entirely consistent with comparative jurisprudence on legitimate expectations in national and supranational legal systems. Respondent also notes that the European Court of Justice has held that the state's conduct must amount to a "precise assurance".329 Thus, Respondent concludes that Claimant's case on the frustration of legitimate expectations must fail.330

Tribunal's Analysis

283.
The Tribunal has already noted that Article II of the BIT does not create an enforceable obligation and, in any event, is of little import as Claimant does not raise independent claims under it.331 In addition, the Tribunal considers that there is no basis in the text of the BIT to conclude that Article II(1) broadens the fair and equitable treatment clause of Article III(1).

Protection of the Investor's Legitimate Expectations

286.

There are numerous examples of the protection of legitimate expectations in investment cases. For example, in Metalclad v. Mexico333 the investor was assured that it had all the construction and operating permits it needed for its landfill project, but the municipality refused to grant a construction permit. The Tribunal held that the investor was entitled to rely on the representations of the federal officials and that the acts of the state and the municipality were in violation of fair and equitable treatment under Article 1105 of NAFTA.334

288.
It follows from the above that any legitimate expectations, in order to be protected by the fair and equitable treatment standard, must have existed at the time the investment was made. Expectations created after that date, especially in the course of seeking remedies, would not be covered by the notion of legitimate expectations as developed in the context of the fair and equitable treatment standard.

Procedural Propriety and Due Process

294.
With respect to substantive denial of justice, the tribunal in Jan de Nul found that there was no indication of any discrimination, bias or malicious application of the law based on sectional prejudice.351
295.

in Toto,352 the claimant sought to base its claim for violation of the fair and equitable treatment standard on the slow progress of proceedings before the respondent's Conscil d'Etat since the proceedings had not progressed over six years.353 After examining the practice under the International Covenant on Civil and Political Rights ("ICCPR"), the tribunal identified several factors that needed to be assessed when determining a denial of justice claim, namely the complexity of the matter, the need for celerity of decision and the diligence of claimant in prosecuting its case.354

Action in Good Faith

297.

Good faith is a broad principle that is one of the foundations of international law and has been confirmed as being inherent in fair and equitable treatment.355

298.
in Saluka, the tribunal gave a central role to the requirement of good faith in its description of fair and equitable treatment. The tribunal said:

A foreign investor protected by the Treaty may in any case properly expect that the Czech Republic implements its policies bona fide by conduct that is, as far as it affects the investors' investment, reasonably justifiable by public policies and that such conduct does not manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination.356

8.3 MERITS - CLAIMANT'S TREATY VIOLATION CLAIMS

302.
Claimant asserts that the Czech Republic has violated its obligations under Articles II(1) and III(1) of the BIT in the following ways:

(1) The Regional Court in Brno inexplicably took more than three years to respond to Claimant's application to invalidate the decision that served to solidify Soska's illegal control of LZ in September 2002 and ongoing breaches of the USA;

(2) The bankruptcy judges for both MA and LZ jointly partook in a fundamentally flawed decision-making process that both deprived the Investor of any chance of rescuing LZ and the LET Assets and its right to benefit from its position as a secured creditor in both bankruptcies once the judges had permitted the liquidation to be commenced;

(3) Czech officials could have exercised their authority to remedy the treatment being received by Claimant but consistently failed to do so; and

(4) Because Respondent's legal system was manifestly inadequate for the tasks required of it under applicable international law, it failed to comply with Respondent's international obligation to maintain an effective means for the enforcement of an international tribunal's orders and award.361

303.

In its final submission to the Tribunal, Claimant set out the following as the key questions for the Tribunal's determination:

(a) whether the lack of transparency and ineffective operation of Respondent's Commercial Registry, coupled with the deficient operation of its bankruptcy regime, fell below the standards promised in Articles ii or iii of the Treaty;

(b) whether the LZ joint venture could have been protected in a timely and effective manner if Claimant had received:

(i) access to an investment protection regime, whose operation was consistent with the promise of full protection and security; and

(ii) the assistance of the Czech state, once it offered its assurance to use its position as the largest potential creditor of Moravan to negotiate with Soska;

(c) whether the Czech bankruptcy trustees and bankruptcy judges were required to exercise their discretion under the Czech bankruptcy code and applicable law in a manner consistent with the standard of fair and equitable treatment, the principle of good faith, and otherwise in accord with the Czech state's international obligations.362

304.
Respondent asserts that by the end of its submissions, Claimant abandoned the formulation described above (see supra paragraph 302), but never sought to amend its claims as presented in its Memorial with reference to Article 20 of the UNCiTRAL Rules. Respondent submits that, in the event that Claimant seeks to amend the formulation of its claims, Respondent reserves its right to request that the Tribunal decline to grant leave to do so having regard to the delay and prejudice that would be caused to Respondent in accordance with Article 20 of the UNCiTRAL Rules.363

Tribunal's Comment

305.
The Tribunal notes Respondent's comments concerning the different formulation of Claimant's claims in its last submission. The Tribunal does not find that Claimant has actually varied its claims, but rather has just expressed them in a different way. in the Tribunal's view, Claimant's rephrasing of its claims does not justify an application to amend.

8.3.1 Claim 1 - Court Delays

Claimant's Position

306.
Claimant asserts that the 39-month time period during which the Regional Court failed to determine Claimant's Resolutions Claim364 breached international standards. Claimant characterises the Regional Court's failure to act as a denial of justice prohibited under the customary international law minimum standard of treatment, which it asserts is also encapsulated within the more substantively expansive and autonomous standard of "fair and equitable treatment" under Article III(1) of the BIT.365 Claimant argues that the Regional Court's failure to act is also prohibited under the customary international law version of the fair and equitable treatment standard which Claimant observes both Parties agree is informed by the doctrine of denial of justice.366
307.

Claimant notes that Respondent is a Party to the European Convention for the Protection of Human Rights and Fundamental Freedoms ("ECHR"), Article 6(1) of which specifies that states must ensure that all persons receive fair, transparent, and expeditious access to a court. Claimant submits that this right, particularly when the nature of the dispute is urgent, also stands as an obligation required under the minimum standard of treatment under customary international law.367 Claimant argues that by operation of Articles III(3) and III(4) of the BIT, Respondent was obliged to afford it the most favourable treatment it otherwise would be obliged to provide to its own investors or to the investors of third parties; thus, Claimant argues, it is entitled to the same right to expeditious proceedings before a court in the Czech Republic as are those legal persons entitled to such treatment under the ECHR.368

308.
Claimant denies that it took no steps to accelerate the court proceedings, explaining that it contacted members of parliament with respect to the delays.369 Claimant argues that there was no excuse for Czech government officials to do nothing to help Claimant when alerted to this delay.370
309.
Claimant rejects Respondent's suggestion that it contributed to the delay by failing to pay a court fee and seeking a postponement of the court proceedings pending the Final Award. Claimant notes that if a court fee is not paid when a motion is filed, the court is required by the Court Fees Act to request payment,371 and the Regional Court did not request payment until 26 May 2004, following which the fee was paid immediately.372 Claimant also states that its request of 23 December 2004 for suspension of the proceedings in light of the imminent release of the Final Award caused virtually no delay; following translation and certification, the Final Award was filed with the Regional Court on 22 March 2005, a full year before the Regional Court's final decision.373
310.
Claimant rejects Respondent's characterisation of its claim as a "denial of justice" claim, explaining that its claim has been framed in terms of breach of the fair and equitable treatment standard and breach of the duty of full protection and security. Claimant also asserts that Respondent cannot point to any authority for the proposition that claims under autonomous treaty standards can be effectively "down-converted" to customary international law claims on the sole basis of a theory of denial of justice.374 Claimant notes that the tribunal in Saipem determined that a claim for substantial impairment of an investment need not be treated as a denial of justice case simply because judicial officials were responsible for the offending measure.375
311.
In response to Respondent's argument that Claimant has failed to show that the delays caused its loss, Claimant explains that if the Resolutions had been enjoined or annulled by the Regional Court, Soska, Joachimczyk, and Stefánek could not have continued to control LZ, and instead Orbes, as trustee for Moravan, would have been entitled to assume control of MA and LZ and commence fulfilment of the USA pursuant to the Draft Cooperation Agreement.376 Claimant also argues (i) that the Commercial Register should have immediately terminated the offices of Soska, Stefánek, and Joachimczyk when Soska submitted the WIMCO Resolutions by concluding that these Resolutions did not confirm their election or appointment in accordance with Section 31(a)(6) of the Commercial Code ; and (ii) that if the putative transfer of all of MA's shares to WIMCO had been disclosed by the Commercial Register, either Claimant or Orbes could have legally challenged that submission.377 Claimant disputes Respondent's assertion that Soska and his cohorts would have ensured their reappointment even if the Resolutions Claim had been successful, arguing that this overlooks the probability that any involvement by WIMCO was unlawful.378
312.
In response to Respondent's allegation that Claimant misled Czech authorities by making contradictory statements about the LZ share certificates in three different legal fora, Claimant argues that it simply did what any sensible investor would have done.379

Respondent's Position

313.
Respondent asserts that Claimant's claim with respect to court delays rests upon a misrepresentation of the procedure before the Regional Court. Respondent argues that there was a delay attributable to the Czech Republic of no more than 18 months at a time when the responsible judge was on maternity leave during which Claimant (i) took no steps to accelerate the proceedings as it was entitled to under Czech law; (ii) did not communicate with the court; (iii) requested postponement of the proceedings pending the Final Award; and (iv) did not pay the requisite court fee, which resulted in a delay of issuance of the court's decision.380
314.

Respondent also asserts that the notion that an 18-month delay in court proceedings might constitute a denial of justice in international law and rise to the level of a breach of Article iii of the BiT is "preposterous"; there would be few, if any, legal systems in the world that would satisfy this unrealistic standard. Moreover, Respondent contends that the inaction of Claimant during this period is fatal to its claim.381

315.
Respondent refers to a ruling of the English High Court concerning delay in the Czech courts, which acknowledged that "delay may be so great as to amount to a denial of substantial justice [and] breach of Art.6 of [the ECHR ]", but concluded that a five or six year delay does not mean that substantial justice cannot be obtained.382
316.
Respondent argues that Claimant has not provided the Tribunal with an objective test for when judicial acts satisfy the threshold for a breach of the fair and equitable standard of treatment or the standard of full protection and security. Without this, Respondent asserts, adjudication of this claim would become a wholly subjective exercise and the Tribunal would be wrongfully deciding the matter ex aequo et bono.383 Respondent concludes therefore that the cases dealing with denial of justice and forum non conveniens are essential to the determination of whether there has been a breach of the international standard encapsulated in Article III(1).384
317.
Respondent further asserts that international tribunals with jurisdiction to review the decisions of national courts on the ground of procedural irregularity have, without exception, insisted upon a high threshold for a breach of the international standard.385
318.
Respondent distinguishes Saipem as concerning the illegality of judicial interference with an ICC arbitration. Respondent asserts that the tribunal correctly adapted the test for liability under the relevant investment protection standards to account for the judicial nature of the impugned acts by mirroring the high threshold for the international censure of judicial acts found in cases of denial of justice.386
319.

Respondent submits that the conduct of Claimant over the relevant period is significant for a denial of justice claim.387 Respondent asserts that Claimant could have accelerated the proceedings before the Regional Court, it could have complained to the President of that Court and, if not satisfied, to the Ministry of Justice or to the appellate court with a request for the setting of a mandatory timetable for the case.388 Respondent maintains that although Claimant's failure to initially pay the fee did not cause substantial delays in the proceeding, it was symptomatic of Claimant's failure to prosecute its Resolutions Claim properly.389

320.
With regard to Claimant's assertion that it used available legal remedies by lobbying members of parliament,390 Respondent submits that it would have been "outrageous" for the Czech parliament to interfere with the Regional Court because the Czech Constitution is based upon the separation of powers and the rule of law.391 Moreover, Respondent observes that Claimant's complaint to the Prime Minister occurred on 23 November 2005, i.e. some three years after the Resolutions Claim was commenced.392
321.
Respondent also submits that Claimant has failed to establish a causal connection between the alleged denial of justice before the Regional Court and the downfall of its investment.393 Respondent posits that even if the Regional Court had ruled immediately in Claimant's favour, it would have made no difference to the "fortunes of [Claimant's] investment in LZ".394 Respondent argues that all that Claimant could achieve with a decision in its favour was the right to request the convening of a general meeting of LZ and exercising of its minority shareholder rights at such meeting which could not assure a successful restructuring of LZ.395
322.
Respondent notes that there is no evidence for Claimant's claim that Orbes would have been willing to "commence fulfilment of the USA" and that, in any event, the absence of a court decision about the resolutions was irrelevant for the actions which Claimant expected him to take.396 Moreover, according to Respondent, Orbes contemporaneously took steps that directly contradicted the Draft Cooperation Agreement.397
323.
Respondent also argues that, if anything, it was a different resolution adopted at the LZ General Meeting which confirmed Soska, Joachimczyk, and Stefánek as members of the board of directors of LZ that could have been seen as perpetuating their membership on the board of directors of LZ.398 Respondent notes that Claimant did not contest this resolution within the statutory deadline set so it became legally valid.399
324.
Respondent observes that Claimant appears to give little importance to this claim in its Post-Hearing Memorial,400 which Respondent attributes to Jewitt's admission under crossexamination that he had pursued a course of conduct that was premised on the simultaneous validity of Claimant's share certificates in LZ (before the Regional Court) and their forgery (before the Czech police).401 Respondent also notes that Claimant represented to the Stockholm Tribunal that it had never received any shares at all.402 Respondent contends that Claimant thus deliberately misled the Czech courts and the police.403 Claimant's positive statements of fact in three different judicial fora that are in direct contradiction of each other and are therefore known to be false, Respondent argues, is reason enough for this claim to be dismissed.404

Tribunal's Analysis

325.
The Tribunal notes that while Claimant initially appeared to formulate this claim as a denial of justice claim as well as a claim for breach of the fair and equitable treatment standard under the BIT, it later clarified that this is a claim for breach of the fair and equitable treatment and full protection and security protections under the BIT.405 This Tribunal will analyse Claimant's claims as they have been formulated by Claimant, i.e. as alleged breaches of the BIT.
326.
The Tribunal examines as a first matter the timing of the Injunctions and Resolutions Claims before the Regional Court. There is some disagreement with regard to the filing date of the Resolutions and Injunctions Claim with Claimant alleging that it filed these claims on 22 November 2002 and Respondent alleging that Claimant filed these claims on 3 December 2002. The Regional Court rendered a decision on the Injunctions Claim on 4 December 2002.406 Given the Regional Court's promptness here, the Tribunal does not accept that Claimant has any basis to argue that the Regional Court was delayed with respect to the Injunctions Claim. The Tribunal rejects Claimant's claims in this regard and turns now only to assess its claims vis-à-vis the Resolution Claims.
327.
With regard to the Resolutions Claim, the first action by the Regional Court occurred on 5 May 2004, approximately 18 months after Claimant's filing. The parties exchanged submissions between June 2004 and June 2005, and a hearing was held on 27 February 2006 at which the Regional Court granted Claimant's request (i) confirming that Claimant was a shareholder in LZ and thus entitled to file a motion; (ii) finding that the Resolutions were invalid; and (iii) ordering that the Resolutions not be entered in the Commercial Register.407 The Tribunal notes that there were delays in these proceedings -notably the 18-month delay following Claimant's initial filing - that could form the basis of a complaint by Claimant. Whether such delays rise to the level of breaches of the BIT is a different question that the Tribunal will turn to now.
328.
As already discussed (see supra paragraphs 289 et seq.), the Tribunal is satisfied that procedural propriety and due process are well-established principles under the standard of fair and equitable treatment.408 In assessing whether the delays at the Regional Court were such that they constituted a breach of the fair and equitable treatment standard, the Tribunal finds the criteria set forth in Toto409 useful:

To assess whether court delays are in breach of the requirement of a fair hearing, the ICCPR Commission takes into account the complexity of the matter, whether the Claimants availed themselves of the possibilities of accelerating the proceedings, and whether the Claimants suffered from the delay.410

331.

Third, it is not clear how Claimant suffered from this delay. While Claimant asserts that the matter was urgent, it has not established to the Tribunal's satisfaction that earlier action on the part of the Regional Court would have made any difference to the purported effect of the Resolutions on Claimant's investment. As noted by Respondent, it is far from certain that, had the Resolutions Claim been successful at an earlier stage, (i) Soska et al would not have been able to control LZ; and (ii) Orbes (as trustee for Moravan which, according to Claimant, remained the sole shareholder of MA at the time) could have stepped in to control MA and LZ and fulfil the terms of MA's agreement with Claimant. The Tribunal finds that Claimant has failed to establish that Orbes would have taken control of MA if the Commercial Register had terminated the offices of Soska, Stefánek, and Joachimczyk when Soska submitted the WIMCO Resolutions.414

332.
The subject matter of the Resolutions Claims included a determination of the validity of two resolutions that purported to (i) change the Articles of Association of LZ (approving an increase of the number of the members of the board of directors of LZ from 3 to 5); and, (ii) establish a CZK 298,000,000 capital increase to be effected through a monetary contribution of Claimant. Even if the Regional Court had immediately declared these two resolutions invalid, it would not have meant that Soska would not still have been able to control LZ because these resolutions did not affect the ownership of shares of LZ. Under the USA, Claimant had agreed to be a minority shareholder in LZ in which Mr. Soska was to retain majority shareholder control.
333.
Nor would it have meant that Orbes would have taken control of MA and LZ and fulfilled the terms of the USA. The unsigned Draft Cooperation Agreement between Claimant and LEGES (prepared by Claimant) anticipated that LEGES, as the bankruptcy trustee of Moravan, would (i) change the board of directors of MA; (ii) change the board of directors of LZ; and, (iii) fulfil the terms of the USA.415 There is no evidence to show that LEGES ever agreed to this, and in fact the Draft Cooperation Agreement was never signed (notwithstanding that there was nothing to prevent LEGES from signing it during the pendency of the Resolutions Claims). By contrast, rather than sign the Draft Cooperation Agreement, in December 2002, LEGES included all of the LET Assets in the bankruptcy estate of Moravan of which LEGES was the trustee (see supra paragraph 91). By including all of the assets held in the subsidiaries of Moravan into Moravan's bankruptcy estate, it set out to assert ownership rights of Moravan to these assets; this action was in contradiction to what Claimant would have had LEGES do pursuant to the Draft Cooperation Agreement.
334.
In the Tribunal's view, while an inordinate delay can amount to a violation of the fair and equitable treatment standard, the circumstances in the present case do not meet the required threshold. The Tribunal notes that there is disagreement between the Parties as to the exact amount of delay at the Regional Court that is attributable to Respondent, but, even on Claimant's case that the Regional Court was responsible for a total delay of 39 months, the Tribunal is not satisfied that such a delay constitutes a breach of the fair and equitable treatment standard of the BIT. As discussed above at paras. 293 and 295, in Jan de Nul416 and Toto,417 delays in court proceedings of ten and six years respectively did not amount to a violation of the fair and equitable treatment standard. Even if this Tribunal were to conclude that the entire delay was attributable to Respondent, it does not find that a delay of just over 3 years amounts to a breach of the fair and equitable treatment standard of the BIT in the present circumstances.
335.
To the extent that Claimant has pleaded this claim as a breach of full protection and security, the Tribunal dismisses Claimant's allegations. The judicial system of the Czech Republic was available to Claimant and responsive to Claimant's requests. The Injunctions Claim was addressed promptly (within twelve days assuming Claimant's alleged filing date of 22 November 2002). Also, once the Regional Court requested payment of the court fee, and it was paid, the Regional Court's response time between submissions never exceeded ten days. For example, nine days after the fee was paid, the Court sent a request to LZ to submit comments with regard to Claimant's claim within ten days. Similarly, six days after LZ submitted its comments, the Regional Court requested a reply from Claimant.418
336.
The Tribunal notes that there was a delay of 18 months following Claimant's initial filing when the Regional Court took no action and this Tribunal acknowledges that such a delay is not ideal. However, this Tribunal appreciates that at the time in question, the Czech courts were experiencing at once a high volume of cases and a shortage of judges.419 This helps to explain the delay, and although not an optimal situation for the efficient resolution of claims, this Tribunal does not find that such a delay rises to the level of a breach of the BIT.
337.
With respect to Claimant's argument that government officials wrongfully failed to take action when alerted to the delay at the Regional Court, the Tribunal considers that the government officials were not under an obligation to intervene in court proceedings between private parties, and therefore no right of Claimant had been breached by their failure to act. On this point, the Tribunal finds it relevant that while Claimant complained to government officials, it only did so well after the proceedings were concluded. Again, there is no evidence that Claimant took active measures to accelerate the procedure at the Regional Court during the actual processing of the Resolutions Claim.

8.3.2 Claim 2 - Actions of Bankruptcy Judges

Claimant's Position

339.
Claimant contends that actions of the bankruptcy judges for MA and LZ breached the fair and equitable treatment standard and the full protection and security standard, which Claimant argues "must extend to the protection of foreign investors from private parties when they act through the judicial organs of the State."420 Claimant asserts that they arbitrarily exercised their discretion and demonstrated an unacceptable bias against Claimant as a foreigner when they denied any interim relief or recognition and enforcement of the Interim and Final Awards.421 Claimant asserts that "all concerned were misguided in thinking that an allegedly mandatory municipal law could deny recognition and enforcement, or that the arbitration had not lawfully been pursued, or that there was a public policy reason not to recognise and enforce the Final Award".422
340.
Claimant objects to the meeting between the two judges and the bankruptcy trustees on the grounds that it was procedurally unfair to Claimant and "typifies the disposition of Czech officials to adopt an arbitrary and parochial construction of their delegated authority in order to justify, on a post hoc basis, their decision not to act in a fair and equitable manner towards [Claimant]."423
341.

Claimant also objects to Hanzlikova's decision that "the fact that the arbitration proceeding continued after the adjudication of a bankruptcy order constitutes a reason for the denial of the Award's recognition and enforcement pursuant to [Article V(2)(a) of the New York Convention ]", asserting that this decision contravenes Claimant's rights under Article III of the BIT, Respondent's obligations under the New York Convention,424 and Article 15 of the EC Regulation, which provides:

The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending.425

342.
Claimant contends that according to Article 4 of the EC Regulation, the law of Sweden applies.426
343.
Claimant submits that it is evident that when she was appointing Hajtmar as preliminary trustee for MA, Hanzlikova recognised that (i) the Interim Award was binding and enforceable in the Czech Republic; (ii) in the face of possible bankruptcy, the arbitration proceedings would serve to resolve the priority of Claimant's claims; and (iii) MA and LZ were specifically prohibited by the terms of the Interim Award from any further sale, transfer, encumbrance, or any other method of disposal of the LET Assets regardless of whether the assets were in actual possession or control of MA or LZ.427 Claimant disputes Respondent's contention that Hanzlikova was merely reciting Claimant's position in her decision.428
344.
Claimant argues that the Vala Opinion, upon which it alleges the bankruptcy judges based their rulings, was wrong in several material respects, explaining that: (i) Claimant had applied for separate satisfaction in the bankruptcy proceedings by filings dated 28 June 2004 in the case of MA and 26 July 2004 in the case of LZ; and (ii) its entitlement to a first secured charge as of 15 August 2001 had been confirmed by the Stockholm Tribunal, who did not purport to grant a first secured charge, but rather ordered the trustees to grant it.429 Claimant also argues that, as explained above, the Vala Opinion was wrong in that (i) Claimant had a right to pursue arbitration after insolvency because the Stockholm Arbitration had been pending well before the declarations of bankruptcy of MA and LZ;430 (ii) the Final Award was legally effective and enforceable;431 and (iii) Respondent was bound by the New York Convention to allow the Stockholm Tribunal to complete its work.432 Claimant also notes that the trustees of MA and LZ had lawfully been joined to the Stockholm Arbitration.433
345.

Claimant also refers to Hanzlikova's finding that "an Award ordering the bankruptcy trustee to grant secured charges against the bankrupt's assets to the benefit of a creditor, cannot be enforced because such an act would contradict to [sic] the Bankruptcy and Composition Act and as such it would be generally illegal and in breach of this country's public order."434 Claimant asserts that merely because a Czech law is considered to be mandatory does not render the law to the category of public policy. Public policy, Claimant argues, contemplates exceptional considerations which transcend specific state regulation, such as human rights and corruption, not the equality of bankruptcy creditors.435

Awards in the Theory and Jurisprudence of the Central and East European States and Russia, 19 Arb. int. 72 (2003) (Tab 6 of Claimant's Post-Hearing Memorial).

346.
Claimant also disputes Respondent's contention that a party must apply for recognition and enforcement of an arbitral award and that Claimant had failed to do so. Claimant submits that Section 40 of the Czech Law on International Private and Procedural Law states that recognition of a foreign arbitral award does not require a separate ruling.436
347.
Claimant disputes Respondent's contention that the substance of Claimant's request of the trustees pursuant to the Interim Award was satisfied by their temporary freezing of the disposition of the LET Assets controlled by MA or LZ until a declaration of bankruptcy. Claimant suggests that the trustees could have stayed their processes until after issuance of the Final Award because all transactions concerning the company are subject to the preliminary trustee's consent.437
348.
Claimant disputes Respondent's assertion that the New York Convention does not require its courts to honour interim measures of protection, noting that international jurisprudence currently takes a "pro-enforcement" approach.438
349.

Claimant asserts that, as the Czech Republic is an "avowedly proud" "Model Law Country", the 2006 amendments to the UNCITRAL Model Law, which apply to preliminary and interim measures, should be used as a yardstick for measuring how Respondent could have acted fairly and equitably in the circumstances.439

350.
Claimant submits that the actions of the bankruptcy trustees fall under two categories of attribution to Respondent: (i) exercise of delegated legislative authority; and (ii) control by an organ of the Czech state. Claimant also argues that it is not essential for the conduct of the trustees to be attributed to the state in order to succeed in its claim because their conduct is part and parcel of Respondent's bankruptcy regime.440
351.

Claimant explains that the trustees possessed the delegated legislative authority necessary to act as "de facto gatekeepers for Respondent's bankruptcy regime" in that they make initial decisions about whether a creditor's claim is valid on its face or should be excluded.441 Claimant argues that the fact that the erroneous decision not to include Claimant's claim was not corrected by either bankruptcy judge confirms that the trustees' decisions should be attributed to the Czech state.442

352.

Claimant contends that it is not a controversial proposition in international law that such delegated authority may serve as the source for attribution.443 Claimant also notes that the Czech Constitutional Court has ruled that bankruptcy trustees exercise state authority in a manner akin to a public body.444

Respondent's Position

353.
Respondent argues that there was nothing objectionable about the meeting between the bankruptcy judges and trustees and Vala because (i) Claimant's requests for preliminary injunctions had already been denied; (ii) Claimant's ex parte request calling on the judges to exercise their supervisory discretion under Section 12 of the Bankruptcy Act did not constitute an adversarial proceeding; and (iii) the bankruptcies of LZ and MA were inextricably linked, requiring the involvement of all of the attendees in question.445 Respondent notes that Claimant was provided with a detailed account of the discussions the following day and that Claimant was well aware of ongoing coordination between the bankruptcy trustees and the creditors' committees of MA and LZ, who met regularly in joint meetings, because Sup was present at those meetings. While Claimant may not have known the content of the Vala Opinion, Respondent argues that this is not attributable to Respondent.446
354.
Respondent dismisses Claimant's suggestion that there was a conspiracy to block recognition and enforcement of the Final Award, noting that six different courts including the Supreme Court and the Constitutional Court subsequently upheld the ruling against Claimant's application to enforce the Order on Security in the Final Award.447
355.
Respondent argues that the Interim Award was not enforceable under the New York Convention448 and that even if it was, one cannot enforce a judgment or award simply by instructing an agent to write letters to various institutions; a judicial procedure must be followed.449
356.
Even though Claimant's various applications with respect to the interim Award actually went beyond the relief granted by the Stockholm Tribunal,450 Respondent argues that all of Claimant's requests were reviewed and those that were in accordance with applicable law were granted.451 Claimant's request for appointment of an interim receiver in MA and an injunction to prevent disposition of the assets of MA (to give effect to the interim Award) was upheld as no consent was given for any dispositions of assets by LZ during the preliminary bankruptcy trusteeship of LZ (9 January 2004 to 30 March 2004), and a preliminary bankruptcy trustee was installed in MA such that there were no dispositions relating to MA's property.452 Respondent also notes that the Cadastral Office was unable to obtain Claimant's cooperation in dealing with its request for a seal to be imprinted by identifying the real property affected by the interim Award and confirming the interim Award's final and binding effect.453
357.
Respondent disagrees with Claimant's characterisation of the Czech Republic as an "UNCiTRAL Model Law" country, noting also that the interim Award was issued on 30 January 2004, almost three years before the 2006 amendments to the UNCITRAL Model Law regarding interim measures were adopted.454
358.
In response to Claimant's arguments under Article 15 of the EC Regulation, Respondent posits that Article 15 only determined the procedural effects of bankruptcy proceedings commenced in the Czech Republic on the Stockholm Arbitration,455 but does not determine anything with respect to the enforceability of any ultimate judgment or award against the litigant party subject to the bankruptcy proceedings.456
359.

Respondent rejects Claimant's submission that the conduct of the bankruptcy trustees for MA and LZ is attributable to the Czech state and submits that it is settled Czech law that the Czech Republic is not liable for acts of the bankruptcy trustees.457 Respondent explains that under the Bankruptcy Act, the bankruptcy trustee is an independent procedural entity and, although the trustee is selected by the bankruptcy court from a list of independent private individuals or legal entities registered with the court, the trustee is not a court proxy and is not acting on its behalf.458 Once appointed by the court, the bankruptcy trustee is obliged to fulfil its obligations autonomously, with professional care and under personal liability for damage caused by its acts.459 The remuneration and expenses of the bankruptcy trustee are borne by the creditors as they are paid out from the proceeds of the sale of the bankruptcy assets.460 Respondent explains that the bankruptcy trustee does not possess the authority to decide on the existence or priority of a claim in bankruptcy.461

360.

Respondent dismisses Claimant's reliance on the Constitutional Court's statement that a bankruptcy trustee exercises state authority in a manner akin to a public body, noting that the decision in which the statement is found did not substantively deal with the position of the bankruptcy trustee, but rather decided on the abolition of certain provisions of the Bankruptcy Act relating to the process of remunerating a bankruptcy trustee, on the basis that they violated the principle of equality.462 Respondent notes that the decisions of other Czech courts have dealt with the issue more directly and support its position.463

361.

Under international law, Respondent submits that the acts of a bankruptcy trustee do not satisfy the test for attribution under Article 5 or Article 8 of the ILC Articles. Respondent explains that a bankruptcy trustee is not a de jure or de facto public organ for the purposes of Article 5, nor does a bankruptcy trustee act "on the instructions of, or under the direction or control of" the Czech state for the purposes of Article 8.464

362.

Respondent notes that the issue of responsibility of a state for a bankruptcy trustee acting within a civilian legal framework similar to that of the Czech Republic has been discussed in Plama v. Bulgaria where the tribunal decided that Bulgaria was not responsible for the actions of its bankruptcy trustees.465

Tribunal's Analysis

363.
Given the significant degree of overlap between Claim 2 and Claim 4, only Claimant's complaints regarding the 1 June 2005 meeting between Hanzlikova, Boháček, Sládek, Hajtmar, and Vala (the bankruptcy judges and trustees), and the treatment of the Vala Opinion will be dealt with under this section. Claimant's claims relating to the substantive decisions of the bankruptcy judges and trustees, as well as other Czech courts, with respect to the recognition and enforcement of the Interim and Final Awards will be dealt with under Claim 4.
364.
Claimant alleges that the 1 June 2005 meeting was procedurally unfair and demonstrative of Czech officials' adopting an arbitrary and parochial construction of their delegated authority in order to justify their decision not to act in a fair and equitable manner.466 Claimant characterises this meeting as a "serious departure from basic principles of fairness and due process".467 Claimant implies that it should have received notice of the 1 June 2005 meeting.468
365.
With respect to the Vala Opinion, Claimant implies that it should have been provided with an opportunity to comment on the Vala Opinion.469 Claimant finds the Vala Opinion to be both factually incorrect in that it wrongfully alleged that (i) Claimant had implied that the Final Award was in the process of being nullified; (ii) Claimant had never initiated any proceedings to recognise or enforce the award; and (iii) Claimant had never claimed separate satisfaction for its security interest pursuant to the Final Award. Claimant also asserts that the Vala Opinion was legally incorrect in that it wrongfully stated that (i) the Stockholm Arbitration was not permitted to continue once bankruptcy had been declared; (ii) the Arbitral Award contravened the public policy of the Czech Republic because it ordered the trustees to grant secured charges contrary to the Bankruptcy Act and failed to respect the equality of creditors in bankruptcy; and (iii) Claimant was not entitled to any secured charges until the proceedings with respect to nullification of the Final Award had been resolved, which Claimant notes did not occur until September 2008.470
366.
As noted above (see supra paragraphs 289 to 296), in order to constitute a breach of fair and equitable treatment on the grounds of procedural impropriety and a lack of due process or bad faith, other tribunals have considered factors including a failure to hear the investor, lack of proper notification, persistent appeals to local favouritism, and denial of access to the courts.
367.
in this case, it is necessary to consider the exact nature of the 1 June 2005 meeting and the events which led up to it. These have already been described in outline in paragraphs 153 to 155 above, but a closer analysis is appropriate.
368.
The Final Award in the Stockholm Arbitration was issued on 30 December 2004.471
369.
On 28 February 2005, Czech counsel for Claimant submitted the Final Award, including a certified translation into the Czech language, to the judges seized with the bankruptcy proceedings against MA and LZ and to the trustees in bankruptcy for MA and LZ, Hajtmar and Sládek, respectively.472 The submission to the judge overseeing the bankruptcy proceeding of MA expressly made the request that the Final Award be recognised:

Based on the above, i am herewith requesting you to exercise your authority and ensure that the above Arbitral Award be recognized, namely by the bankruptcy trustee.

370.
Jewitt testified to his understanding that Claimant's counsel made a similar submission to the judge overseeing the LZ bankruptcy proceeding.473 Respondent does not appear to challenge this evidence.
371.
On 31 March 2005, the trustee in bankruptcy for LZ, Sládek responded to Claimant's correspondence of 28 February 2005 and sent an almost identical letter to Sup, of Transfin international s.r.o., the agent of Claimant in the Czech Republic.474 in these letters, the objection that recognition and enforcement of the Final Award could contravene public policy was raised for the first time:

in [sic] Article V para (2) letter b) of the [New York] Convention stipulates that the recognition (and enforcement) of a foreign arbitral award shall be denied if the award would contravene public policy of the country where the recognition (and enforcement) is supposed to be executed. In terms of the subject arbitral award, I must state that it indeed contradicts the public policy of the Czech Republic. I see this contradiction in an apparent incompatibility with the Czech mandatory legal regulations, in particular Act No. 328/19991 Coll., on bankruptcy and composition. Since bankruptcy proceedings mean serious intervention in the legal status of a broad spectrum of subjects, they are regulated by a strictly mandatory legislation which must be unconditionally observed. […] Since the Arbitral Award fails to respect mandatory legislation regulating bankruptcy proceedings and fundamental legal principles, it is unacceptable in the Czech legal system. Therefore I cannot consider it in the bankruptcy proceedings.

372.
On 8 April 2005, Vala, counsel for the creditors' committee of MA, informed Czech counsel for Claimant that the creditors' committee "concluded that this Final Award orders the bankruptcy trustee to effect performance that is impermissible according to domestic law."475 He also indicated that the creditors' committee filed an action requesting the cancellation of the Final Award.
373.
The statement of claim filed with the Regional Court in Brno in the action to nullify the Final Award filed by Vala on behalf of Hajtmar, as trustee in bankruptcy of MA, alleges that compliance with the Final Award would be impossible or impermissible under domestic law.476 Likely due to the nature of the proceeding, the public policy ground for refusing the recognition and enforcement of an arbitral award was not invoked.477 Based on the evidentiary record, it does not appear that any similar arguments were made by the trustees in bankruptcy of either MA or LZ to the judges overseeing the respective bankruptcy proceedings.
374.
On 11 May 2005, a representative of Claimant participated in the second review hearing in the bankruptcy proceeding for MA. Claimant's claimed receivable was not discussed and was transferred to the next review hearing "given the seriousness of this case".478 It does not appear that the Final Award or its potential impact on the bankruptcy proceeding was discussed before the court.
375.
On 17 May 2005, in response to a joint public tender for the assets of MA and LZ announced by the respective trustees in bankruptcy, Claimant applied for interim injunctions in both bankruptcy proceedings seeking to enjoin the trustees in bankruptcy from disposing of the assets of MA and LZ. At the same time, Claimant filed parallel motions to cancel the joint tender in each proceeding.479
376.
On 19 May 2005, the court in the MA bankruptcy proceedings declined the application for an interim injunction. The court did not analyse the Final Award. Rather, it dismissed the injunction application with reference to its supervisory jurisdiction, which required the court's approval to any sale of the assets of MA. Since the approval had not been given, Claimant remained legally protected. The court observed:

Such approval has not been issued yet and in the future decisionmaking about the approval the court will take into consideration all of the above mentioned facts and will carefully consider further action in a way that the rights of either participant won't be violated.480

377.
Claimant's appeal from the denial of the interim injunction was dismissed by the High Court in Olomouc on 27 July 2005 for the reasons expressed by the bankruptcy court. However, the appellate court also agreed with Claimant that its submissions in respect of the Final Award had not been addressed by the lower court:481

The appellate court agrees with the bankruptcy creditor's objection that the first instance court has not addressed the grounds for seeking an interim injunction. in the petition for an interim injunction, the Petitioner stated circumstances based on which he concluded that the execution of rights pursuant to the final award of December 30, 2004 had been frustrated. He explicitly stated that the enforcement of this award had been jeopardized [...]

378.
On 23 May 2005, the court supervising the bankruptcy proceedings involving LZ also denied Claimant's motion for an interim injunction. The decision rested on the same reason as expressed in the 19 May 2005 decision in the MA proceeding. However, as additional grounds, it concluded that recognition and enforcement of the Final Award should be denied pursuant to section 39(a) and (c) of the Arbitration Act "if the award is not legally effective and enforceable pursuant to domestic law and the award would contravene public policy."482
379.
On the record, the bankruptcy court's decision in the LZ proceeding denying Claimant's application for an interim injunction was the first instance in which the incompatibility of the Final Award with Czech public policy was raised in the proceedings before the bankruptcy courts. At this point in time, Claimant's motions to strike the joint tender were still pending and it had not had an opportunity to make submissions on the public policy objections to the recognition and enforcement of the Final Award.
380.
On 1 June 2005, the supervising judges in the bankruptcy proceedings involving MA and LZ held a joint meeting with the trustees in bankruptcy for the two companies, Hajtmar and Sládek. Claimant did not participate in the meeting. Its main witness, Jewitt, has testified that Claimant did not have notice of the meeting and only learned of the meeting the following day, when Hajtmar sent a reporting e-mail to Sup.483
381.
At the 1 June 2005 meeting, the participants discussed the Final Award and Claimant's motions to cancel the joint tender. The minutes of this meeting report the following in respect of the recognition and enforcement of the Final Award:484

All parties present agree that the subject Arbitral Award cannot be respected in view of the provisions of §39, letter b) and §31, letter f) of Act No. 216/1994 Coll. on bankruptcy proceedings and the enforcement of arbitral awards, because it adjudicates the party to perform acts that are impossible or illegal under domestic law and because, according to Article V.2B) and Decree No. 74/1959 Coll. on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the recognition or enforcement of the Award would contradict the public policy of the Czech Republic.

This means that in the course of the bankruptcy proceeding, the right to separate satisfaction from the Bankrupt's assets cannot be established for a creditor and therefore the Bankruptcy Trustee can neither conclude a contract of pledge to the benefit of the creditor nor provide any other security for his receivable. Such approach would be in gross violation of the Bankruptcy and Composition Act. Apart from separate satisfaction based on a promissory note […], the creditor did not claim any right to separate satisfaction in either of the bankruptcy proceedings; therefore, such claim could not have been reviewed in the review hearing and this creditor is not a separate creditor. […]

Both Judges agree that the standing of creditor Frontier and claims raised by this creditor do not constitute an obstacle to the prepared sale.

Mgr. Vala submits to the court a written statement regarding the creditor's motion to proceed pursuant to §12 of the Bankruptcy and Composition Act [the cancellation of the tender].

382.